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Bitcoin’s Rollercoaster: Surges Then Faces Sudden Dip As Options Expiry Looms

According to Crypto trader Mags, Bitcoin, the flagship cryptocurrency, has recently demonstrated a notable +55% surge, breaking out from a smaller broadening wedge pattern.

Mags shared insights on this significant price movement, observing Bitcoin’s breakout and suggesting a mid-term target at the “upper trendline resistance of a larger broadening wedge.”

This surge notably results from several catalysts in play, such as the surging interest of institutional investors and the US approval of spot Bitcoin Exchange-Traded Funds (ETFs).

Upcoming Options Expiry Impact’s Bitcoin Price

However, Bitcoin has seen a slight downturn following its recent surge over the past 24 hours. Despite being significantly up over the past month, the asset has declined by nearly 10% in the past day, with its current trading volume slightly decreasing to $44 billion from over $50 billion yesterday.

BTC price chart on TradingView

This sudden dip can largely be attributed to the imminent expiration of options. According to the options trading platform Greeks.live, a substantial 36,000 BTC options are set to expire soon, featuring a Put Call Ratio of 0.9.

Notably, the ‘Put Call Ratio’ serves as a sentiment indicator, assessing the market mood by comparing the volume of put options to call options. It is calculated by dividing the number of traded put options by the number of traded call options.

Put options grant the holder the right (but not the obligation) to sell a specified amount of an underlying asset at a predetermined price within a specific timeframe. Conversely, call options allow the holder the right (but not the obligation) to buy a specified amount of an underlying asset at a set price within a specific timeframe.

The Put Call Ratio is interpreted in two ways: a high ratio (greater than 1) and a low ratio (less than 1). A low ratio suggests more call options are being bought than put options, indicating bullish market sentiment as more traders expect the market to rise.

Conversely, a high ratio indicates that more put options are being bought than call options, suggesting bearish market sentiment as more traders anticipate a market decline.

With Bitcoin’s Put Call Ratio currently at 0.9, as reported by Greeks.live, it implies that traders are leaning towards a bearish move for Bitcoin. This anticipated decline may contribute to Bitcoin’s current dip, despite the recent commencement of spot Bitcoin ETF trading in the US.

Bitcoin’s Bullish Potential

Despite the current dip, market analysts suggest this downturn might be short-lived. As highlighted by crypto trader Mags, the breakout from a smaller broadening wedge pattern signifies a bullish sentiment in the short term.

The +55% surge marks a recovery from previous lows and prepares the stage for a potential ascent toward the upper trendline of a larger broadening wedge. Such a pattern hints that Bitcoin could be primed for further substantial price movements shortly.

Additionally, the ‘Max Pain’ point, as identified by Greeks.live, is currently pegged at $45,000 for Bitcoin, holding a total notional value of $1.68 billion. This point, where option holders face the most financial loss, is a critical indicator of the market’s potential direction.

According to Greeks.live’s analysis, the nearing expiry of 36,000 BTC options implies that the market is poised for significant movements. In anticipation of these dynamics, Greeks.live reported a shift in trading strategies has been observed, with a growing emphasis on ‘LONG GAMMA’ approaches.

Featured image from Unsplash, Chart from TradingView

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Record Crypto Options Volume Expires Pre-Bitcoin ETF Deadline: Analyzing BTC And ETH Reactions

The recovery of the overall crypto market this year has spurred a surge in the digital-asset derivatives market as institutional investors seek exposure to the crypto space. 

According to a recent Bloomberg report, the deadline for US regulators to approve or reject Bitcoin (BTC) exchange-traded funds (ETFs) has prompted traditional investors to turn to crypto options and futures, leading to unprecedented trading volumes.

Crypto Options Trading Hits Record High

Before the options expiry on Friday morning, crypto options trading volume reached a new all-time high, with options worth a notional value of $11 billion, as highlighted by Bloomberg. Of this total, Bitcoin contracts accounted for $7.7 billion, while Ethereum (ETH) options represented $3.5 billion.

Despite the expiration of many options, the impact on the major cryptocurrencies has been limited.  With its strong support floor at $42,000, Bitcoin has maintained its position for a potential uptrend once bullish momentum returns and buying pressure increases. 

Over the past 24 hours, Bitcoin has traded within the same range as the previous day, at $42,200, experiencing only a 0.4% decline. Nevertheless, Bitcoin has yet to fully recover from its 3.4% drop over the past seven days.

Crypto

In contrast, ETH was hit by the expiration of options contracts. Ethereum, the second-largest cryptocurrency on the market, fell more than 2%. EHT dropped to $2,316 after hitting an annual high of $2,445 on Thursday.

However, while heightened trading activity may accompany the expiration of options, it is unlikely to impact spot market prices, according to Luuk Strijers significantly, Deribit’s chief commercial officer. 

Strijers notes that clients are rolling their positions to 2024 expiries, and additional activity is anticipated after the expiry. The focus of attention and trading activity will primarily be on the impending ETF decision, Bloomberg notes.

Surge From Traditional Asset Managers 

The cryptocurrency market has undergone a strong rally this year, with Bitcoin surging nearly 160% following a turbulent 2022 marked by industry scandals and price declines. 

The recovery has been fueled partly by the optimism surrounding the potential approval of spot Bitcoin ETFs, which would attract a broader range of investors to the asset class.

Ryan Kim, head of derivatives at digital-asset prime brokerage FalconX, highlights the growing participation from crossover macro accounts, referring to large traditional asset managers allocating a small percentage of their portfolios to cryptocurrencies and crypto-focused hedge funds.

In addition, according to Bloomberg, perpetual futures, a favored tool for leveraging crypto trades, are trading at a significant premium compared to spot prices, indicating rising demand for such products.

Overall, the surge in the cryptocurrency derivatives market, driven by options expiry and the pending decision on Bitcoin ETFs, reflects the growing interest of institutional investors in the crypto space. 

The record-breaking trading volumes and increased participation from traditional asset managers highlight the evolving landscape of digital assets. 

As the market awaits the regulatory verdict on Bitcoin ETFs, it remains to be seen how these developments will shape the future trajectory of the crypto market and its integration with traditional financial systems.

Crypto

Featured image from Shutterstock, chart from TradingView.com