Today marks a significant event for the cryptocurrency markets, with $2.4 billion in Bitcoin options and $600 million in Ethereum options set to expire. This massive expiry event follows a week of declining prices and weakened market conditions. As traders and investors watch closely, the question arises: Can the expiration of these options help the crypto markets recover, or will it exacerbate existing challenges?

Bitcoin Options Expiry Details

On August 2, approximately 37,000 Bitcoin options contracts are expiring, representing a substantial notional value of around $2.4 billion. This expiry event is notable, though smaller than last week’s end-of-month expiry, and slightly larger than the typical monthly expiry.

• Put/Call Ratio: The current put/call ratio stands at 0.58. This indicates that there are nearly twice as many call contracts (long positions) compared to put contracts (short positions) expiring today. This skew suggests a generally bullish sentiment among traders regarding Bitcoin’s price direction.
• Max Pain Point: The max pain point for these Bitcoin options is set at $66,000. This is the price level where the maximum number of option holders will experience losses. Currently, Bitcoin’s spot price is below this level, which could imply that option holders are facing unfavorable conditions.
• Open Interest: Open interest, the total number of outstanding contracts yet to expire, remains high at the $70,000 strike price, with approximately $846 million in open interest. This high open interest reflects significant market positions and potential volatility as these contracts approach expiration.

Ethereum Options Expiry Overview

In addition to Bitcoin options, about 180,000 Ethereum options contracts are expiring today, with a notional value of $600 million. These Ethereum options also impact the overall crypto derivatives market.

• Put/Call Ratio: Ethereum’s put/call ratio is 0.55, indicating a slightly more balanced sentiment compared to Bitcoin, but still favoring call contracts over puts.
• Max Pain Point: The max pain point for Ethereum options is set at $3,300. Similar to Bitcoin, this price level represents where the highest number of option holders face potential losses.

Impact on the Crypto Market

The cryptocurrency markets have been under pressure this week, with total market capitalization dropping by 4.8%, bringing it down to $2.41 trillion by Friday. Both Bitcoin and Ethereum have experienced notable declines in their prices.

• Bitcoin: After reaching a high of $70,000 on July 29, Bitcoin has fallen by approximately 8%, trading around $64,250 as of the Friday morning session in Asia. The asset touched an intraday low of $62,400 on August 1 but has since shown some recovery.
• Ethereum: Ethereum has also weakened, falling 7% since Monday to trade at $3,155. Despite this decline, Ethereum’s spot ETF flows returned to positive on August 1, with an aggregate inflow of $26.7 million, suggesting some renewed interest from institutional investors.

Market Volatility and Recovery Prospects

The expiry of these significant options contracts comes at a time of reduced market volatility. The forward-looking Bitcoin volatility index (DVOL) has dropped nearly 15% from 62% to 48% since the end of July. This decline in volatility reflects a period of relative calm in the markets.

Deribit’s data indicates that the major term implied volatility has seen significant decreases, suggesting that the recent volatility spikes may be settling. With critical events like the Bitcoin 2024 Conference and FOMC meetings behind us, the market is adjusting to these changes.

Will the Expiry Help or Hurt the Market?

The expiration of such a large volume of options could have mixed effects on the crypto markets. On one hand, the removal of these options from the market might reduce some of the speculative pressure and volatility associated with them. On the other hand, if a significant number of options are settled out-of-the-money (i.e., not in a profitable position for the holders), this could exacerbate market weakness.

Given the current price levels and market sentiment, the impact of today’s expiry could be critical. If Bitcoin and Ethereum prices manage to stabilize or recover, this could signal a positive shift and potentially set the stage for a market rebound. Conversely, continued declines might reflect deeper market issues and could lead to further selling pressure.

Conclusion

As $2.4 billion in Bitcoin options and $600 million in Ethereum options expire today, the cryptocurrency markets are at a pivotal moment. The expiry event may influence market volatility and price movements, with potential for both recovery and further decline. Traders and investors should remain vigilant, closely monitoring how the market responds to this significant expiry and adjusting their strategies accordingly.