Bitcoin, the flagship cryptocurrency, is gearing up for a week of anticipated price volatility as approximately $3 billion worth of Bitcoin options and $1.8 billion in Ether options are scheduled to expire on September 29th. This date holds significance as it marks the conclusion of both the month and the quarter, often translating into substantial trading volumes and increased market turbulence, according to Deribit Chief Commercial Officer, Luuk Strijers.
One intriguing aspect is the striking resemblance between the cryptocurrency market and traditional finance as they approach options expiry dates, particularly quarterly expiries. These events can trigger massive trading volumes and significant price fluctuations, creating opportunities for market makers and traders alike.
The Bitcoin Volatility Index, which gauges expected volatility over the next 30 days based on the sentiments of Bitcoin option traders, has been relatively stable near all-time lows. However, it has exhibited a slight uptick over the past month, hinting at a potential increase in market dynamics.
Strijers pointed out that “market maker movements can lead to amplified market volatility,” especially in the days leading up to options expiry. Market makers adjust their hedges to align with shifts in the underlying asset’s price, amplifying price movements. The impact of September’s monthly and quarterly expiries is expected to be more substantial than daily or weekly expiries, although current market conditions may not lead to exceptionally strong price fluctuations.
Bitcoin’s price remained relatively stagnant, with a marginal 0.1% increase to $26,544 on Friday, as reported by CoinGecko. Over the past month, Bitcoin has experienced a modest 0.4% decline in value.
Impact of Institutional Investors on Bitcoin
Institutional players utilizing the Deribit derivatives exchange are expected to employ sophisticated strategies around options expiries, emphasizing the need to manage volatility and delta hedge their exposure. These institutional investors frequently adjust their hedge positions, potentially impacting Bitcoin prices and overall market volatility.
Options are derivative contracts that grant the holder the right, but not the obligation, to buy or sell the underlying asset at a predetermined price on or before a specific expiry date. Call options provide the privilege to buy, while put options confer the right to sell. Investors employ options for various purposes, ranging from hedging positions against unfavorable price movements to speculating on future valuation trends and volatility.
As the cryptocurrency market faces these impending options expiries, traders and investors should remain vigilant, as the convergence of factors at the end of the month and quarter could lead to a turbulent ride for Bitcoin and the broader crypto market.