On Friday, bitcoin Options or derivatives contracts worth billions will expire on the Deribit cryptocurrency exchange. Traders may want to keep in mind that the expiration dynamics are such that the BTC market price could rise towards a very specific point: $75,000.
Deribit, the world’s largest crypto options exchange, will settle bitcoin options contracts worth $14.16 billion on Friday at 08:00 UTC. This means that almost 40% of all open interest (the dollar value of all active contracts on the exchange) will expire in about 48 hours. On Deribit, one options contract represents one BTC.
Options are contracts that allow you to bet on whether the price of an asset, such as BTC, will go up or down. A call option is a bet that the price will go up and a put option is a bet that it will go down. Traders buy options to try to profit from price swings, or write (short) options to earn income by assuming the risk that prices move in the buyer’s favor.
Here’s why expiration is important
According to Deribit data, the “peak pain” price, the level at which most contracts would expire worthless (non-winning lottery tickets), sits right at $75,000.
As such, this level could act as a magnet, according to Jean-David Péquignot, commercial director of Deribit.
“With Bitcoin currently trading near $71k, the Max Pain price of $75k represents a gravitational pull. Historically, this encourages delta hedging by market makers who can drive prices towards the strike price at which most options expire worthless,” Péquignot told CoinDesk.
That’s how it works. According to maximum pain theory, option writers (usually large funds, institutions, or market makers with deep pockets) control or influence the spot price toward the pain point to limit payouts to buyers and thus inflict maximum damage on them. This happens through normal trading in the spot or futures markets, and not as guaranteed manipulation.
This mechanical buying and selling often brings the spot price closer to the maximum pain level, which is $75,000 in the case of bitcoin.
While maximum pain is well known in traditional markets, its influence on cryptocurrencies remains debated. Deribit, however, points to the level as a potential magnet. To add to the intrigue, several analysts have identified $75,000 as key resistance, above which Bitcoin could enter full bullish mode.
Controlled expiration
Quarterly expirations typically trigger massive position adjustments and hedging flows. Even so, it is likely that the imminent expiration will develop normally, without an excessive increase in volatility.
This follows from the fall in the implied volatility index.
“Over the last few sessions, we have witnessed a compression of implied volatility (IV), with BTC and ETH DVOL falling ~6 points. This suggests that the market is pricing in a controlled expiration rather than an immediate explosion in volatility,” Péquignot said.
He added that market data suggests traders are not chasing a breakout as geopolitical uncertainty in the form of war with Iran persists. He specifically noted that institutions issued calls at higher strike levels (levels above the current spot price) as evidence of measured bullish sentiment. Traders often make blanket calls to collect premiums on top of their spot market holdings.
“The Put/Call ratio for Bitcoin options remains healthy (0.63), but the concentration of put calls suggests a ceiling of institutional resistance as traders have been overwriting their positions relative to the bank premium while waiting for geopolitical time to run out,” he noted.
Overall, the big expiration with $75,000 acting as a magnet comes at an intriguing time: bitcoin has held up remarkably well during the turbulence of the Iran war, maintaining its strength even as stocks falter and energy markets remain fickle.
