Market Sentiment Suggests Potential Plunge in Bitcoin and Ethereum Prices as $5.8 Billion Options Expiry Looms
The anticipated surge in the crypto market in January did not materialize, despite the SEC’s approval of a spot Bitcoin ETF. This approval was expected to drive significant buying but failed to counter the outflows from Grayscale’s GBTC, which continued to put pressure on the market. However, the situation may soon intensify as nearly $5.8 billion worth of Bitcoin and Ethereum options are set to expire, potentially introducing significant price volatility, especially since the market is currently below the “max pain point.”
On January 26 at 08:00 UTC, a massive $5.82 billion in options for Bitcoin (BTC) and Ethereum (ETH) is set to expire, and this event could play a crucial role in determining the market trend in February.
Breaking down these options, $3.73 billion is tied to BTC, while $2.05 billion is linked to ETH, revealing an interesting trend for these two major cryptocurrencies. In the case of Bitcoin, the put/call ratio is 0.52, indicating a significant concentration of interest in call options.
Notably, the “max pain point” for Bitcoin is identified at $41,000, and there is a substantial open interest exceeding $361 million at the higher strike price of $50,000. The max pain point represents the price level at which option holders are likely to face the greatest losses at expiration. In traditional financial markets, it is believed that option sellers, often institutions with significant financial resources, aim to manipulate the spot market towards this max pain point as the expiration date approaches. This is done to maximize losses for the option buyers.
As Bitcoin currently trades below the max pain point, there is growing concern about increased selling pressure tomorrow. Investors holding call options may face losses as their options become worthless if the price is below the strike price. This could lead to more selling pressure as investors try to minimize losses or cover their positions. If the BTC price falls below $40,000, we may see a retest of support near $38,000.
The situation with Ethereum options presents a different picture, with a relatively lower put/call ratio of 0.31 and a max pain point set at $2,300. Additionally, there is a notable open interest of approximately $200 million centered around the $2,400 price level. Call holders are expected to face the most significant losses tomorrow.
With Ethereum currently trading well below its max pain point, this suggests a likelihood of increased selling pressure in the coming hours. As traders brace for losses, this scenario could trigger widespread liquidations in the market.
However, this situation is generally favorable for option writers (sellers) as they get to keep the premium paid by the option buyers without having to deliver the underlying asset or pay out cash.