As we marked the close of the second quarter, a tense atmosphere marked the cryptosphere. Approximately 150,000 BTC options contracts, analogous to $4.5 billion, met expiration on Deribit, a colossus commanding over 85% of global crypto options activity. A simultaneous expiry of 1.2 million ETH contracts, which are worth $2.3 billion, reinforce an underlying resonance in the cryptocurrency strategy arena.
Given that market makers in BTC options were heavily “long gamma,” all eyes were on the potential influences of these hedging exercises on spot price movements. Alas, the significant actions resulted in less turmoil than expected, with the largest cryptocurrency by market value still trafficking between the $30,000 and $31,000 bandwidth pre and post event. Actually, only a minimal 1% gain to $30,700 is recorded at 10:40 UTC.
Nestled within the popular hypothesis is the concept that prices tend towards a ‘max pain point’ towards contract expiration – a level at which options buyers would bear the most loss. Imposing traders who sell options would be aiming to steer prices towards this level in order to maximize losses on the buyer side. Throughout the formidable bull market of late 2020 and into the early months of 2021, BTC swayed towards these max pain points before expirations, swiftly picking up trajectory post settlement.
For June options, the ‘max pain point’ was set at $26,500 and $1,700 for BTC and ETH respectively. As we take a step back from the expiration magnet, anticipation brews regarding a potential upward journey in the market. As Luuk Strijers, chief commercial officer at Deribit, puts it, “BTC Max Pain at a significantly reduced level of $26.5K might alleviate the prevailing downward pressure on prices following the expiration.”
Despite the optimism, a cloud of uncertainty hovers. The dollar index (DXY), a measure of the greenback against other major currencies, clocks a two-week high of 103.50, backed by cheering economic data and the prospect of stubborn inflation, hinting at higher-for-longer interest rates. Notably, the rally in DXY traditionally precipitates a tightening of financial conditions globally and a propensity for risk aversion, albeit moderated by positive market sentiment wrought by recent filings by BlackRock, Invesco, and Fidelity for spot BTC ETF.
The cryptocurrency seas are rich with signals and strategic considerations. As the dust settles on the expiration event, the community looks ahead, crafting the course of their crypto journey based on a constellation of influencing factors.
Source: Coindesk
