The interesting thing about this particular option expiration is that the “max pain price”, in Spanish maximum pain price, current for expiration is $ 54,000, which is very close to the current trading price. The maximum pain price is the price at which most options lose their value, leading to the loss of the option premium for option holders. Although, in this situation, option issuers win.
On April 29, more than $ 4.2 billion in Bitcoin options contracts will expire (BTC). This expiration occurs after Bitcoin has seen a recovery from $ 48,000 to the current range of $ 54,000. Total open interest on Bitcoin options currently stands at $ 13.54 billion, with more than 88% on Deribit, the largest crypto derivatives exchange by both volume and market capitalization.
Cointelegraph discussed this with Robbie Liu, a market analyst at OKEx Insights – the research team at crypto exchange OKEx. I affirm that “A large expiration alone does not indicate that the market is bullish or bearish, but it did slow the price rise when the previous quarterly options expired at the end of March. And after the delivery, the downward pressure eased.”.
In fact, when looking at the maximum pain curve, it is apparent that it is reasonably flat at the bottom. This means that the overall economic impact of a maturity of $ 48,000 is relatively comparable to that of a maturity of $ 62,000. Shaun Fernando, Head of Risk and Product Strategy at Deribit, told Cointelegraph: “At expiration, with the removal of the pain point, this could lead to an easier deviation from the 54k level.”
According data From CoinOptionsTrack, the put-call ratio to expiration is 0.69. The put-call ratio describes the trading volumes of put options relative to call options. A buyer of a put or put option has the right to sell the underlying asset at a predetermined price on a certain date, while the holder of a call or call option has the right to buy an asset at a predetermined price on a certain date . The put-call ratio is often used as an indicator of the prevailing sentiment in the market. If the value is greater than 1, it is considered an indicator to sell, while a value less than 1 is seen as an opportunity to buy. Regarding the implications of the maximum pain price theory in this expiration, Liu elaborated:
“The current pain maximum price of options due April 30 is at $ 54,000, but is skewed by the unreachable calls of $ 80,000, which have the highest open interest right now. Market participants are currently more concerned with the large number of put options at $ 52,000 and $ 51,000 expiring worthless. “
You can see the impact of the expiration of the options
Although the expiration dates of monthly options are often significant events for your underlying assets due to the large size of the expirations, an expiration in itself is not a rare event. There are multiple options with different expiration dates offered by various exchanges. For example, the April 23 expiration caused 27,000 BTC in options to expire. At the current price, this maturity was worth $ 1.45 billion. A large part of this was about 2,500 put options at a strike price of $ 50,000, while the maximum pain price was at $ 58,000.
Liu explained that the impact of the April 23 expiration was seen directly on the price of Bitcoin: “Bitcoin experienced great selling pressure last Friday and the price managed to fall below $ 50,000 at the time of the option liquidation, at 4 p.m. HKT [8:00 am UTC]. Then there was a rebound. We still cannot know if the same scenario is going to be repeated“.
Although this impact is usually evident in the short term, some investors believe it could be an overvalued angle of analysis. Scott Melker, a cryptocurrency trader and analyst, told Cointelegraph:
“There has been a lot of debate about the effect of BTC option expirations and their effect on the market. Options are a fraction of the total market and it is rationally unlikely that they will affect the spot price dramatically, but that has not prevented for traders and investors to get poetic about price suppression and “maximum pain” in the expiration week at the end of each month. “
Ki Young Ju, CEO of cryptocurrency analytics firm CryptoQuant, told Cointelegraph: “The Bitcoin options market is still relatively small for expiration to have a considerable impact on the spot price“.
As the debate continues on the impact of the Bitcoin options market on the price of BTC in the long term, the analysis of the underlying asset price trends shows an interesting aspect.
Price trend in April is lower than usual
Despite Bitcoin reaching its all-time high of $ 64,900 on April 21, it experienced a 27% drop almost immediately as its price fell to the $ 46,000 range. Since then, the star cryptocurrency is recovering from this crash. Considering only the April trend, there has been a 5% loss in the price of BTC – which was not expected, considering its April returns in the last four years. Unless there are drastic price movements on April 30, this will be the first time in six years that BTC ends the month of April in the red.
Lui opined on this, saying: “Bitcoin has averaged 30% profitability in April in the last four years. But the market leader has outperformed much more in the first quarter of this year than in previous years. Not bad for Bitcoin to take a hiatus in April after the previous parabolic run“. Fernando elaborated further, referring to BTC’s earnings during the first quarter:
“Historically, there are big drops in March. As this year has not been the case, we can expect that April will also break with the convention. In addition, the plans for this month did not help. [el presidente de los Estados Unidos] Biden to raise capital gains tax rates. “
However, the one-year earnings for BTC currently stand at 604%, which is unprecedented, thus showing that 2021 has been an exceptional year for the asset to date. This is mainly due to the growing attention paid to Bitcoin and other first-rate cryptocurrencies by both retail and institutional investors.
The month of April has not been different in terms of the continued institutional adoption of the asset. On April 21, Japanese gaming giant Nexus became the latest major company to invest in Bitcoin. Announced that had made a purchase of 1,717 BTC at a price of 58,226 dollars, which is equivalent to an investment of about 100 million dollars.
Tesla’s first quarter earnings release revealed that made a profit of 101 million dollars from the sale of BTC. While most perceived this as a positive development showing the potential profits and liquidity of Bitcoin, some skeptics saw this as a sell-off and a broader call to sell Bitcoin. Elon Musk, CEO of Tesla, was quick to point out that “Tesla sold 10% of its stakes essentially to demonstrate Bitcoin’s liquidity as an alternative to holding cash on the balance sheet.” and that you personally have not sold any of your Bitcoin.
Whales being whales?
One way to gauge institutional movements is through the outputs of the Coinbase Pro exchange. exchange normally integrates its custody wallets with its over-the-counter desks, through which institutions usually operate to minimize the impact on the spot markets. Exits are considered a representation of institutional activity in the BTC market.
According to CryptoQuant’s “BTC: Coinbase Pro Outflow” tracker, there were four significant exits from Coinbase in April. This BTC may have gone into Coinbase’s custodial wallets for OTC trading.
Ju explained in more detail: “Institutions like Tesla use the Coinbase Prime broker to buy or sell BTC. They would be massive orders that can affect the price of BTC. Coinbase’s premium has been negative / neutral for the past 7 weeks, but turned positive lately, hitting an all-time high a week ago.“
The Coinbase Premium Gap measures the difference in the price of BTC on Coinbase Pro and Binance. The larger the gap – and the higher the premium – the stronger the spot buying pressure on Coinbase.
As Bitcoin continues to rebound from its mid-April slide, it is clear that institutional interest in the asset continues to rise despite the price volatility it has experienced recently. Although the upcoming expiration of the $ 4.2 billion options does not have a great economic impact for option holders, it is very likely that after the expiration of the options, the downward pressure on BTC will move away from the current maximum price of pain of $ 54,000.