On Thursday, the cryptocurrency market saw a slight rebound. Bitcoin climbed from a daily low of $68,855 in the early morning and reached a high of $71,635 in the afternoon before falling back. It stabilized around $70,000 before the expiration of major options on Friday.
As for altcoins, Dogecoin (DOGE) surged nearly 20%, with its trading price breaking $0.22 for the first time since December 14, 2021. Bitcoin Cash (BCH) also rose by 13% ahead of the expected halving event on April 4.
In the stock market, the S&P 500 index rose at the end of the day. Investors are focused on tomorrow’s Personal Consumption Expenditures (PCE) report, which is expected to show a slight increase in inflation. However, the impact on the stock market will be delayed due to the closure of the US market for Good Friday. At the close, the S&P index and the Dow Jones index rose by 0.11% and 0.12% respectively, while the Nasdaq fell by 0.12%.
On Friday at 08:00 UTC, the cryptocurrency options exchange Deribit will see $15.2 billion worth of quarterly contracts expire. Bitcoin options account for $9.5 billion, representing 62% of the total open interest, while the remaining is for Ethereum options.
Deribit’s data shows that this $15.2 billion expiration is the largest in the history of the exchange, and it will eliminate 40% and 43% of the total open interest for Bitcoin and Ethereum respectively across all expiration dates.
The nominal open interest refers to the dollar value of active contracts at a given time. On Deribit, one options contract represents 1 BTC and 1 ETH. The exchange holds over 85% of the global cryptocurrency options market share. Call options are financial contracts that give the buyer the right to purchase the underlying asset at a predetermined price in the future, but without the obligation to do so. Put options grant the right to sell.
Luuk Strijers, Chief Commercial Officer of Deribit, stated that a large number of options will expire in-the-money (ITM), which could bring upward pressure or volatility to the market.
According to calculations based on a market price of around $70,000, $3.9 billion worth of Bitcoin options will expire in-the-money, accounting for 41% of the $9.5 billion total open interest for quarterly contracts. Similarly, 15% of the $5.7 billion total open interest for ETH quarterly contracts will expire in-the-money.
Strijers explained, “These levels are higher than usual, which can also be seen from the lower levels of the maximum pain points, and the reason is, of course, the recent price increase. Higher levels of ITM expiration can lead to potential upward pressure or volatility.”
The maximum pain points for BTC and ETH quarterly expirations are $50,000 and $2,600 respectively. The maximum pain point is where option buyers would lose the most money. The theory suggests that option sellers, usually well-funded institutions or traders, would prefer to keep the price near the maximum pain point to inflict the maximum loss on option buyers.
During the previous bull market, both Bitcoin and Ethereum experienced pullbacks towards their respective maximum pain points but resumed their upward trends after expiration.
Strijers suggested that similar dynamics could be at play, saying, “With the expiration eliminating the lower max pain points, the market may face upward pressure.”
David Brickell, Head of International Distribution at Toronto-based cryptocurrency platform FRNT Financial, stated that the hedging activities of traders or market makers could exacerbate volatility.
Brickell said in a report, “However, the biggest impact comes from the Gamma positions of market makers. Market makers are short Gamma by about $50 million, with the majority concentrated around the $70,000 strike price. As the expiration date approaches, the Gamma positions will become larger, and forced hedging will intensify the volatility around the $70,000 level, leading to some drastic fluctuations on both sides.”
Gamma measures the change in Delta, which indicates the sensitivity of options to changes in the underlying asset’s price. In other words, Gamma shows the amount of Delta hedging market makers need to do to maintain a neutral exposure in the face of price changes. Market makers must maintain a neutral exposure in the market while creating liquidity in the order book and profiting from the bid-ask spread.
When market makers are short Gamma or hold short options positions, they buy high and sell low to hedge their books, which can trigger market volatility.
Some traders warn that if Bitcoin falls below the $69,000 level in the next few days, the entire market could experience further pullbacks.
Alex Kuptsikevich, Senior Market Analyst at FxPro, stated in a report, “Traders’ short-term focus will be on whether Bitcoin can retest the intraday low of around $69,500 seen on Tuesday. Breaking below this level could indicate a more prolonged correction.”
Cryptocurrency analyst Bruce Powers believes that Bitcoin has been facing resistance near the 78.6% Fibonacci retracement level for the past four days, with a hurdle at 71,790 points. It has been trading above the 20-day moving average for the past few days. The uptrend remains intact, but the bearish divergence in the RSI suggests that a further pullback may occur. A decisive rebound above this week’s high of 71,290 points will trigger a bullish continuation of the uptrend, with an initial target around 77,660 points, which is determined by two Fibonacci levels.
Author: Mary Liu, Bitpush News
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Tags:
2023 Market Trend
Deribit
Ethereum
Market Maker
Short Selling
Halving
Altcoins
Options
Futures
Bitpush Daily Market Dynamics
Bitcoin
Bitcoin Cash
Bull Market
Dogecoin
Spot Market
Market Trend
Note: All articles from Bitpush represent the views of the author and do not constitute investment advice.
Original article link: https://www.bitpush.news/articles/6535445
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