- Although $ 3 billion in bitcoin options expire this Friday, traders and analysts are not expecting a noticeable impact on the cryptocurrency market.
- But a downtrend is expected to make this market “bleed as a bunch”, but some coins like Avalanche could outperform bitcoin.
- The market is expected to still provide long-term returns to investors.
Despite more than $ 3 billion worth of bitcoin options expiring this Friday, traders and analysts are not expecting a noticeable impact on the cryptocurrency market. But some experts are bracing for increased volatility and downward pressure on bitcoin, the most important cryptocurrency.
A total of 73,702 option contracts worth $ 3.2 billion expire this Friday, according to data provided by the Skew firm. Most contracts are expected to expire worthless as the call option interest is concentrated in strike prices that are currently above the spot price of bitcoin ($ 42,529 per unit).
Most put options are positioned on lower strikes, as noted by Armando Aguilar, digital asset strategist at Fundstrat Global Advisors.
The $ 50,000 mark has an aggregate interest of 12,700 calls and put options. While the $ 40,000 and $ 60,000 levels are the closest prices with the highest demand, he added, pointing to the chart below.
Traders also perceive a lack of publicity regarding the expiration of upcoming options. This according to Patrick Heusser, head of operations at Crypto Finance Brokerage.
“We had some discussions at the desk and also with other traders who trade options,” he told Insider in an email. “If anything, we think volatility is most likely increasing from current levels,” he added.
Heusser added that the increase in volatility could also be related to possible macro events. Due to credit problems of the troubled Chinese real estate developer China Evergrande or a surprise announcement from the Federal Reserve that could begin to withdraw stimulus in the short term.
Aguilar agrees that expirations could provide more price volatility to bitcoin. But the consensus of analysts expects the price to remain within the range observed in the last 72 hours of $ 40,000 to $ 45,000, he said.
Faced with macroeconomic and regulatory risks, as well as technical pressures, bitcoin could have a significant downward movement in prices following this expiration. This was stated by Joseph Edwards, head of research at Enigma Securities.
“Volumes have been aggressively reduced lately. The recent price action has been very reminiscent of September 2019, “he told Insider in an email interview.” And we could see a profoundly negative fourth quarter overall down to lows in at least the $ 20,000 area. If it breaks to the upside, of course, it would mean all-time highs in no time, ”he added.
Trading strategies amid increasing volatility
As in any market, volatility can be a trader’s best friend.
For those who are well versed in options trading, they could look for option sets on the weekly expiration that comes from the quarter. For example, on October 1 or 8, Edwards said.
“Implied volatility in most places is extremely low for early October at the moment, although it has been on the rise,” he explained. “It’s the days after expiration where we expect things to really start moving.”
Another options strategy that professional traders can implement is called a “butterfly” trading strategy. In it, multiple purchase options can be traded on the same expiration date. This strategy allows traders to benefit from the rise while limiting losses, Aguilar explained. The specialist added that retail operators could explore arbitrage opportunities.
Altcoins that could challenge bitcoin’s potential decline
As Crypto Finance’s Heusser likes to say, whenever there is a technical correction in the market, it’s time to “get your shopping list ready” for thoroughly researched tokens at a low price.
Edwards of Enigma Securities believes that “if the markets bleed, they will bleed as one group.”
But for those looking for a ray of hope, exchange tokens like the FTX token (FTT) and the Binance coin (BNB) are worth keeping an eye on. They tend to drop less and jump more again during downtrends. This is because structural works are considered safer than speculative ones, he said.
However, if the market explodes, investors can look to layer one oversold protocols, including Avalanche (AVAX) and Algorand (ALGO), he added.
Marcus Sotiriou, a sales trader at UK-based digital asset broker GlobalBlock, also sees Avalanche as one of the altcoins that may outperform bitcoin in the days and weeks to come. One of the bullish signs is that the layer one protocol recently raised $ 230 million in a private sale of its AVAX token to a group led by Polychain and Three Arrows Capital.
Bitcoin and cryptocurrency market outlook according to experts
With more demand for strikes to the downside than to the upside in the next expiration, there is no question market sentiment is bearish at the moment, according to Sotiriou.
However, last Friday’s call sell for the month-end contract, which dominated the flows, also implies that bitcoin could remain at the sub-$ 50,000 level by the end of the month and move higher in the coming months.
“This likely means that market makers sell BTC in the futures market to remain hedged against their now long BTC position,” he explained. “In my opinion, this is optimistic for options that expire after Friday. Market makers who are short-hedged will have to close their position, creating buying pressure. ‘
Steve Ehrlich, CEO and co-founder of US-based crypto broker Voyager Digital, similarly sees “a small bull run through Friday” if bitcoin’s spot price remains at current levels.
“If it stays at this level for Friday, investors with put options in-the-money will probably exercise their contracts. This would cause initial downward pressure on the price of BTC due to oversupply on the sell side, ”he explained. “However, we may see more buying pressure from call holders to drive the price before expiration,” he added.
In the long term, Ehrlich does not believe that short-term price volatility will have any impact on the value of bitcoin.
“While there may be a price drop at maturity, many will see this as a business opportunity,” he said. “I expect positive price momentum in the long term,” he added.
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