Deribit’s upcoming $7.8 billion bitcoin options expiry is expected to significantly impact market dynamics, with traders anticipating a max pain price of $98k and institutional flows on the horizon.
Some $7.8 billion worth of bitcoin (BTC) options expire at the end of the month, and market dynamics are expected to influence price movements in the near term.
Significant Market Dynamics Ahead of Expiry
Data from Deribit, the largest decentralized options exchange, show that as much as $6 billion in notional value is set to expire out of the money when the contracts close on Jan. 31 at 08:00 UTC. A full 50% of those are put options, which give holders the right, but not the obligation, to sell BTC at a predetermined price within a specific timer period.
Deribit CEO Luuk Strijers notes that “the max pain level for this expiry stands at $98k” and highlights two significant market dynamics that will influence price movements in the near term. Firstly, the recent rescission of SAB 121 enables banks to custody bitcoin, potentially unlocking new institutional flows. Secondly, speculation about a bitcoin strategic reserve announcement adds an additional layer of market anticipation.
Understanding Max Pain Price
The max pain price is where option buyers experience the highest losses, while market makers make the most. As expiry nears, prices often tend to gravitate towards the max pain price, making $98,000 a key level to monitor in the coming week.
Strijers also notes that “next week Friday’s BTC options expiry represents a notable event” with approximately 74,000 contracts expiring. With a total notional open interest of $28 billion, including $7.8 billion set to expire, Strijers expects delta hedging flows in the market due to the high percentage of in-the-money (ITM) options.
Implied Volatility and Market Anticipation
CoinDesk research has noted that implied volatility (IV) hit its highest level on Jan. 20 since August due to bitcoin breaking to new all-time highs. The current IV is around 60, aligning with year-end levels, indicating a high degree of market anticipation.
In conclusion, the upcoming expiry of $7.8 billion worth of bitcoin options will undoubtedly have a significant impact on market dynamics in the coming days. Market makers looking to maximize their profits may try to force prices lower, while institutional flows and speculation about a bitcoin strategic reserve announcement add an additional layer of market anticipation.
