Cryptocurrency markets are preparing for a critical phase of increased volatility as an important Options expiration date approaches. On December 27, up to $14 billion in Bitcoin options are set to expire, an important event that could reshape short-term price trends and impact investment strategies. Analysts expect the incident to prompt increased trading activity, leading to large price swings and heightened market turmoil.
The current open interest in Bitcoin options reflects traders’ bullish outlook, with market sentiment leaning towards optimism. This bullish trend faces obstacles, however, as holidays typically bring lower trading volumes and liquidity, factors that can exacerbate price volatility.
A record $14 billion in Bitcoin options are set to expire this Friday, with the expiring contracts accounting for 44% of Deribit exchange’s total open interest during the expiration period, the largest open interest in the exchange’s history. The CEO of Deribit exchange said that this important event may increase market volatility and may trigger a chain reaction due to higher leverage levels in the market.
As of this writing, $4 billion worth of Bitcoin options (28% of $14 billion in total open interest) are expected to expire “in-the-money (ITM)” this Friday, giving buyers profit. These positions may be liquidated or rolled over (moved) to the next expiration date, which may cause market volatility.
While high volatility can benefit buyers by increasing the chance that options will be "in the money" before expiration, it also creates risks for traders holding bullish positions. If Bitcoin prices move closer to $98,000, traders may feel the need to reassess their positions, which could lead to a market correction.
“I suspect a significant portion of BTC and ETH’s open interest will expire on January 31st and March 28th as the closest liquidity anchors at the start of the new year,” said GSR portfolio manager and trader Simranjeet Singh. It was also noted that the open interest ratio for put to call options expiring on Friday was 0.69, meaning that for every 10 open call options there were 7 put options. Call option open interest is relatively high, which provides buyers with asymmetric upside, indicating leverage is skewed upward.
The December 27 expiration is an important pivot point for the market. A close above $105,000 would solidify bullish momentum and fuel optimism for 2025. Conversely, a break below $95,000 would provide bearish traders with an opportunity to take temporary control of the market.
Deribit CEO Luuk Strijers said the previously dominant bullish momentum has stalled, leaving the market highly leveraged to the upside. This positioning increases the risk of a rapid snowball effect if a significant downside move occurs, with "all eyes on this expiry as it has the potential to shape the narrative heading into the new year."
While Bitcoin’s recent stagnation is likely to continue, the upcoming option expiration could serve as a trigger for a surge in altcoins. Investors are eyeing Bitcoin’s attractive levels near $90,000, suggesting altcoins could benefit from any potential correction in Bitcoin’s price. The interplay between traditional and digital markets, coupled with the impact of the U.S. stock market on cryptoassets, adds additional uncertainty to this festive week.
QCP Capital analysts noted that “as BTC continues to struggle below 100,000, we may also see alternatives start to catch up again.” He added that a month ago, when Bitcoin was trading at current price levels, it was also observed Similar trends. The Ethereum/Bitcoin ratio bounced off the then-0.032 support, fueling the altcoin’s moves. The cryptocurrency market often goes through cycles where Bitcoin leads and altcoins follow. Investors sitting on new market gains seek additional returns, and capital flows into altcoins can lead to sharp gains in the short term.
"$14 billion Bitcoin option is about to expire: market volatility increases, altcoins may rebound" This article was first published on (Block Guest).
