The leading digitalย currency rose 1 percent early Friday morning, while Ethereumย (ETH) jumped 1.6%.
Bitcoinย (BTC) is now currentlyย worth $26,509, down 11 percent inย theย previous 30ย days. Over that same period, the second- largest digitalย currency by marketย capitalization hasย decreased 4.6%.
Today, Bitcoinย (BTC) options on Deribit expired this morning with a notional value of $2.26 Billion and $1.25 Billion for Ethereumย (ETH), inducing uncertainty in the market.
Notional value refers to the total number of outstanding option orders in the market that have isย still to expire.
The Bitcoinย (BTC) options market had a put-to-call ratio of 0.44. Similarly, for Ethereumย (ETH), every put option had two call open options opened. This impliesย that traders mostly held positiveย tendency positions, which is likely why the price responded negatively before the expiry.
An option call contract is a financial derivative that gives the holder the right, but not the obligation, to buy a specific assetโin this case, Bitcoinโat a predetermined price. A put option gives the holder the right to sell.
Andย once an investor purchases a call option, they are essentially betting that the price of the underlying investment will boost over the strike price before the option expires. The strike price represents the pre-determined price at which the option is bought.
Forย example, a May call option for a strike price of $27,000 would mean that for the buyer to turnย a profit, the price must be higher than $27,000 at its expiration.
Usually, the market has a tendency to fluctuate toward maximum pain point nextย to option expiration. The max pain point for todayโs expiration event was $27,000 for Bitcoinย (BTC) and $1,800 for Ethereumย (ETH), approximately current prices.
The maximum pain point in the options market refers to the price level when options buyers will incur maximum losses.
Bitcoin, Ethereumย (ETH) low liquidity takes hold
It was expected that theย present low-liquidity market conditions would have exacerbated the impact of the options expiration event.
BTCโs liquidity dried up in Q2 2023 owingย to events such as the end of Binanceโs zero-fee trading program, the banking crises, and macroeconomic issues like the ongoing debt-ceiling debate in the United States.
Co- founder of cryptocurrency research outlet Jarvis Labs Ben Lilly measured the decline in liquidity using the cumulative volume delta (CVD) metric for spot and futures markets. CVD measures the cumulative change in the volume of buy and sell orders as the price moves.
Itโs used to analyze the flow of volume and can provide insights into the strength or weakness of a tendency or price movement.
Lilly found that the spot CVD has declined significantly since mid-April, indicating that traders are not showing any interest in driving the prices higher or lower.
Adding to the options expiration event, Lilly alsoย mentionedย that once May contracts expire, the marketโs attention will turnย toward June, which are asย ofย now showing a maximum pain level of $24,000 for Bitcoinย (BTC) and $1,600 for Ethereum.
โOnce this unwind for May takes place and contracts expire, weโre now looking at June and the structure should be changing, which points to a pullback toward $24,000,โ wrote Lilly.
Biyond Capitalโs lead trader Nathan Batchelor echoed the over analysis.
โIn low volume, low liquidity trading conditions such as now it is likewise possible the options actions could drive price volatility,โ he informed Decrypt. โMost of the high volume puts are seen around $25,250 so be careful of more downside on Friday if $25,850 is breached.โ
Deribit analysts agreed with the likelihoodย of a bout of volatility accordingย to the historically low reading of short-term implied volatility, which preceded a market rally in January 2023.
Implied volatility is a measure of the marketโs expectation of the future volatility or price fluctuations of an underlying asset.
Deribitโs chief commercial officer Luuk Strijers informed Decrypt that while the previous instance resulted in an upside, it โcould have been a marketย tragedy as well.โ
He expects the short-term volatility to boost and reduce the difference with longstanding implied volatility to reinstate the sentiment that โlower volatility in Bitcoinย (BTC) is here to stayโ before traders can confidently begin longstanding accumulation or distribution.
Disclaimer
The views and opinions expressed by the author are for informational objectives only and doย not constitute financial, investment, or other advice.
