Crypto Fluctuations Post Options Expiration: Analyzing Bitcoin and Ethereum’s Turbulent Ride

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Bitcoin (Bitcoin) and Ethereum (Ethereum) managed to maintain their positions amidst a significant options expiration event early Friday morning. Bitcoin experienced a 1% rise, while Ethereum saw a 1.6% increase. However, over the past 30 days, Bitcoin has fallen 11% while Ethereum has experienced a 4.6% drop.

Deribit experienced Bitcoin options expiration, with a notional value of $2.26 billion, and $1.25 billion for Ethereum, causing uncertainty in the market. The put-to-call ratio of the Bitcoin options market was 0.44, while Ethereum had two call options opened for every put option. This indicates that traders were primarily holding bullish positions, which may have contributed to the negative price reaction before the expiration.

Option contracts such as these offer traders the opportunity to bet on the future price of an asset as either higher or lower than a preset strike price, often resulting in price fluctuations near the point of maximum pain, which refers to the price when options buyers face the largest possible losses. Today’s expiration saw maximum pain points of $27,000 for Bitcoin and $1,800 for Ethereum, reflecting their current prices.

Reduced liquidity in the Bitcoin and Ethereum markets was expected to exacerbate the impact of the options expiration event. Bitcoin’s low liquidity, which is a result of factors such as the discontinuation of Binance‘s zero-fee trading program, the banking crisis, and macroeconomic issues like the US debt-ceiling debate, has been negatively impacting the market since the second quarter of 2023.

Crypto research outlet Jarvis Labs co-founder Ben Lilly analyzed the decline in liquidity through the cumulative volume delta (CVD), which measures changes in buy and sell order volumes. He found a significant drop in the spot CVD since mid-April, implying that traders are not interested in driving the prices higher or lower.

Experts predict that the market will face increased price fluctuations after options contracts expire. Biyond Capital’s lead trader, Nathan Batchelor, suggested that more downside could be seen on Friday if a certain threshold is reached in low liquidity trading conditions. Deribit analysts concurred on this prediction, citing historically low readings of short-term implied volatility preceding a market rally in January 2023. This same measure could lead to a market crash as well, according to Deribit’s chief commercial officer, Luuk Strijers.

Strijers anticipates an increase in short-term volatility that could eventually restore the sentiment that “lower volatility in Bitcoin is here to stay,” paving the way for traders to initiate long-term accumulation or distribution with confidence. However, it is important to note that the information provided is for informational purposes only and should not be considered financial, investment, or other advice.

Source: Decrypt

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