A leading crypto options exchange, Deribit, is on the cusp of concluding significant Bitcoin and Ethereum options contracts, worth billions of dollars. With an impending expiration date, this event stands as one of the largest in the exchange’s history and could send ripples through the crypto market, potentially triggering price swings. Market spectators anticipate a surge in volatility, which could either apply upward pressure or destabilize prices as these contracts near their end.
Market Dynamics Face Potential Shift
Luuk Strijers, Deribit’s Chief Commercial Officer, emphasizes the volume of options nearing expiration, which may alter market behaviors. With prices currently on the rise, the expiry could intensify volatility or apply upward pressure to Bitcoin and Ethereum. Deribit data shows a substantial part of these options, valued at billions, expiring soon, which makes up a significant percentage of the three-month contracts for both cryptocurrencies and could reduce the total nominal open interest by nearly half.
Price Suppression Tactics and Volatility Concerns
The ‘maximum pain points’ for Bitcoin and Ethereum loom, potentially motivating option sellers to drive down prices to reduce losses. David Brickell, a financial expert, points out that brokers might engage in risk hedging to manage a significant ‘gamma gap’, which could inject volatility, particularly around the $70,000 strike price for Bitcoin. This gap could compel brokers to enter mandatory hedging, leading to abrupt price changes.
Gamma, a measure affecting hedging strategies for market makers, is crucial as they strive to remain neutral while facilitating liquidity. Market actions to address a gamma discrepancy may accentuate price fluctuations.
Experts caution investors about the possibility of a downturn in Bitcoin and Ethereum values as they approach their maximum pain points, similar to previous market cycles during option expirations. Thus, the upcoming Deribit options expiry may profoundly impact the crypto market, with potential spikes in volatility and significant price shifts expected.