How The Liquidation of $3.4 Billion Worth of Bitcoin Options Could Affect its Market Value

A large number of Bitcoin and Ethereum options expired on January 26. Let’s take a closer look at how this could affect the prices of these underlying assets.

Cryptocurrency options are derivative contracts that allow traders to buy or sell an asset at a predetermined price on a specific expiration date. The choice not to execute the trade is entirely up to the option holder, which makes options a more flexible tool than futures, which require closing the position regardless of profit or loss.

The nominal value of the expiring contracts is huge, with 93,600 BTC contracts totaling $3.4 billion and 931,610 ETH contracts totaling $2.07 billion. The question now is whether this expiration will trigger increased market volatility and affect the prices of the two largest cryptocurrencies by market value.

At the time of writing this article, the options market was leaning bearish, as evidenced by the put/call ratio of BTC remaining at 0.51. This indicates that the number of bullish options or long contracts sold is twice that of bearish options or short contracts.

Although the open interest contracts are still high, with an exercise price of $50,000, bullish options are 22,719, but the short-term trend is falling. Bearish option sellers may find themselves profitable, especially when their open interest contracts are highest at $40,000.

Switching to Ethereum options, the put/call ratio is 0.31, indicating that the number of bullish option sellers is significantly higher than that of bearish option sellers. This indicates that derivative traders have a bearish sentiment towards ETH.

Predicting the market reaction after the expiration of a large number of contracts is challenging, especially when considering potential events that affect the news background. Nevertheless, traders should pay close attention to the situation to prevent increased volatility from triggering unnecessary stop-loss orders or leading to erroneous trading decisions.

This week, due to Grayscale’s active sales, the price fell below $39,000. After the approval of the Bitcoin ETF, this major cryptocurrency partially rebounded, trading at about $40,000. Ethereum also showed a similar dynamic, falling to $2,180 at one point.

In summary, the consequences of the contract expiration are still uncertain, highlighting the importance of traders staying vigilant in potential market fluctuations.

Sentiment: Neutral