Key Points
- Bitcoin options contracts worth around $14 billion are set to expire on Deribit on December 27, marking the largest event of its kind on the platform.
- Analysts predict potential market turbulence and a shift in open interest to the January 31 and March 28 expiries.
Bitcoin options contracts with a combined value of approximately $14 billion are due to expire on Deribit on December 27. This expiration, accounting for 44% of the total open interest for Bitcoin options, is the biggest of its kind on the exchange. At the same time, Ethereum (ETH) options worth $3.84 billion will also expire.
Options contracts provide traders with the opportunity to speculate on an asset’s price or safeguard against potential losses. The settlement this Friday could see $4 billion worth of Bitcoin options expire “in the money” (ITM), yielding profits to buyers. However, the prospect of market volatility is on the horizon, as traders may roll over or liquidate positions to manage risk.
Market Dynamics in 2024
Analysts anticipate that open interest might move towards the January 31 and March 28 expiries, paving the way for new market dynamics in 2024.
Directional Uncertainty
The unprecedented scale of this expiry event has escalated directional uncertainty in the market. In a recent interview, Luuk Strijers, Deribit’s CEO, highlighted the increased risk of a “snowball effect” if the market continues to face downward pressure. Despite the put-call open interest ratio standing at 0.69, signaling a higher interest in bullish bets, Bitcoin’s price has fallen significantly.
Bitcoin has recently dropped over 13% after reaching a peak of $108,268 following the Federal Reserve’s hawkish stance on interest rates. This has dampened expectations for a traditional “Santa rally”. According to data by CoinMarketCap, the largest cryptocurrency is trading at around $93,940, down by 2.2% in the past 24 hours.
Options-based metrics show the market’s current hesitancy. The volatility of volatility (vol-of-vol), a measure of fluctuations in price turbulence, remains high. This sensitivity could lead to rapid price adjustments and increased volatility, especially for traders exposed to leveraged positions.
Ethereum Faces Bearish Sentiment
Ethereum appears more vulnerable than Bitcoin heading into this expiry. Data from Block Scholes shows a drop in implied volatility for ETH calls, reflecting a decreased demand for bullish bets. The put-call skew for ETH, favoring puts at 2.06%, also highlights a bearish outlook compared to Bitcoin’s relatively neutral stance.
Ether has experienced a 15% drop in its value after crossing a strong resistance level of $4,000. The crypto is trading at around $34,000, up by 1.78% in the past day.
Altcoin Rally Ahead?
Meanwhile, some analysts suggest that investor capital could rotate from Bitcoin to altcoins if the flagship cryptocurrency remains range-bound.
Singapore-based QCP Capital noted the potential for altcoins to gain traction in the aftermath of this record expiry. “As BTC continues to struggle below 100k, we could also see alts start to play catch-up again,” the firm stated.
