Leading crypto options exchange Deribit is gearing up to close Bitcoin and Ethereum options contracts valued at 9.5 billion dollars and 5.7 billion dollars, respectively. The three-month expiry event is anticipated to be one of the largest in Deribit’s history and is expected to significantly influence the cryptocurrency market. Observers foresee an increase in price fluctuations with the potential for upward pressure or volatility injection into the market as a substantial portion of the options contracts approach expiration.
Maximum Pain Points Indicate Potential Decline
Deribit’s Chief Commercial Officer, Luuk Strijers, highlighted the significant number of option contracts set to expire, which could impact market dynamics. Strijers pointed out that, considering the recent price surge, the expiration at higher levels could lead to potential upward pressure or volatility in the underlying assets.
Recent data from Deribit also reveals that a significant portion of BTC and ETH options contracts, valued at 3.9 billion dollars and 5.7 billion dollars respectively, are set to expire at current market prices on March 29. These figures correspond to 41% of the three-month Bitcoin options contracts valued at 9.5 billion dollars and 15% of the three-month Ethereum options contracts valued at 5.7 billion dollars. Furthermore, the three-month expiry will erase 40% and 43% of the total nominal open interest for Bitcoin and Ethereum, respectively.
The maximum pain points for the three-month BTC and ETH option contracts are at 50,000 dollars and 2,600 dollars, respectively, and option sellers aiming to minimize losses may try to suppress the price. David Brickell, Head of International Distribution at FRNT Financial, noted that brokers could act to hedge risks, potentially increasing volatility. Brickell mentioned that there is about a 50 million dollar gamma gap focused around the 70,000 dollar strike price, and brokers being forced into mandatory hedging could lead to sharp price movements around this level.
Gamma, which measures the movement of delta, plays a crucial role in determining market makers’ hedging strategies. Market makers need to maintain an independent position while creating liquidity in the order books, and they may engage in actions that amplify price movements when a gamma gap occurs.
Experts Issue Potential Downturn Warning
Experts are warning investors that BTC and ETH could drop towards their maximum pain points before continuing their rallies, drawing parallels with previous market cycles during option expiry events. Therefore, the upcoming expiry event at Deribit could have significant effects on the overall cryptocurrency market, potentially leading to increased volatility and sharp price movements.
