The interesting thing about this special option expiry is that the “maximum pain price”, in Spanish maximum pain price, is currently USD 54,000 for the expiration, which is very close to the current trading price. The pain cap price is the price at which most options lose their value, resulting in a loss of the option premium for option holders. In this situation, however, option issuers win.
On April 29, more than $ 4.2 billion in Bitcoin Options (BTC) contracts expire. This process occurs after Bitcoin has recovered from $ 48,000 to the current range of $ 54,000. Total open positions in Bitcoin options currently stand at $ 13.54 billion, with Deribit, the largest crypto derivatives exchange by volume and market capitalization, at over 88%.
Cointelegraph discussed this with Robbie Liu, a market analyst at OKEx Insights – the research team at Crypto Exchange OKEx. Said that “A big decline in and of itself doesn’t mean the market is bullish or bearish, but it did slow the price rise when the previous quarterly options expired in late March. And after delivery, downward pressure eased.”.
Indeed, when looking at the curve of maximum pain, it is evident that it is quite flat at the bottom. This means that the macroeconomic impact of a term of $ 48,000 is relatively comparable to that of a term of $ 62,000. Shaun Fernando, Head of Risk and Product Strategy at Deribit, told Cointelegraph: “After the pain point has been removed, this could lead to a slight deviation from the 54k level.”
According to CoinOptionsTrack, the put-call ratio at expiration is 0.69. The put-call ratio describes the trading volume of put options in relation to call options. A buyer of a put or put option has the right to sell the underlying asset at a specific price on a specific date, while the holder of a call or buy option has the right to buy an asset at a specific price on a specific date . The put-call rate is often used as an indicator of the prevailing sentiment in the market. If the value is greater than 1, it is considered a sell indicator, while a value less than 1 is considered a buying opportunity. Regarding the implications of the theory of the maximum price of pain in this process, Liu explained:
“The current pain high for options maturing April 30th is $ 54,000, but is being skewed by the unreachable $ 80,000 calls that currently have the highest open interest. Market participants are more concerned right now over the large number of put options at US $ 52,000 and US $ 51,000 expire worthless. “
You can see the effects of the expiration of the options
While the expiration dates of monthly options are often important events for your underlying assets because of their large expiration, expiration in and of itself is not a rare occurrence. There are several options with different expiration dates offered by different exchanges. For example, After April 23rd, 27,000 BTC options expired. At the current price, this term was USD 1.45 billion. A large portion of that was around 2,500 put options at an exercise price of $ 50,000 while the maximum pain price was $ 58,000.
Liu stated that the impact of the expiration was directly seen on the price of Bitcoin on April 23: “Bitcoin faced strong selling pressure last Friday, and the price fell below $ 50,000 at the time of option liquidation at 4:00 p.m. HKT [8:00 am UTC]. Then there was a rebound. We still cannot know if the same scenario will repeat itself“.
While these effects are typically noticeable in the short term, some investors believe that this could be an overvalued angle of analysis. Scott Melker, a cryptocurrency trader and analyst, told Cointelegraph:
“There has been a lot of debate about the impact of BTC options expiration and its impact on the market. Options make up a fraction of the total market and are rationally unlikely to affect the spot price dramatically, but it doesn’t. It does Dealer held. ” and investors don’t get poetic about price suppression and ‘maximum pain’ at the end of each month in the expiration week. “
Ki Young Ju, CEO of cryptocurrency analytics company CryptoQuant, told Cointelegraph: “The Bitcoin options market is still relatively small as decay has a significant impact on the spot price“.
As the debate about the long-term impact of the Bitcoin options market on the price of BTC continues, analyzing the underlying asset price movement reveals an interesting aspect.
The price development in April is lower than usual
Although Bitcoin hit its all-time high of $ 64,900 on April 21, it fell 27% almost immediately when its price fell to $ 46,000. Since then, The star cryptocurrency is recovering from this crash. Just looking at the April trend, the price of BTC is down 5% – which wasn’t to be expected given the April yields over the past four years. Subject to drastic price movements on April 30th, this will be the first time in six years that BTC has ended April in the red.
Lui said and said: “Bitcoin has achieved an average profitability of 30% for the past four years in April. However, the market leader developed significantly better in the first quarter of this year than in previous years. Not bad for Bitcoin to take a break in April after the previous parabolic runFernando went on to comment on BTC’s results in the first quarter:
“Historically, there are big declines in March. Since this year wasn’t the case, we can assume that April will also break the convention. Also, it didn’t help the plans of this month [el presidente de los Estados Unidos] Biden to raise tax rates on investment income. “
The one-year gains for BTC are currently at 604%, which is unprecedented. This shows that 2021 has been an exceptional year for the asset to date. This is primarily due to the increasing attention from retail and institutional investors to Bitcoin and other top-tier cryptocurrencies.
The month of April was no different in terms of the continued institutional takeover of the asset. On April 21, Japanese gaming giant Nexus became the last major company to invest in Bitcoin. It announced that it had made a purchase of 1,717 BTC at a price of $ 17,226, which equates to an investment of roughly $ 100 million.
Tesla’s earnings release for the first quarter revealed that it made a profit of $ 101 million on the sale of BTC. While most perceived this as a positive development showing the potential profits and liquidity of Bitcoin, some skeptics saw this as a sell-off and a wider call to sell Bitcoin. Tesla CEO Elon Musk was quick to point out that “Tesla sold 10% of its shares essentially to demonstrate Bitcoin’s liquidity as an alternative to keeping cash on balance sheet.“and that he hasn’t personally sold any of his Bitcoin.
Whales are whales?
One way to measure institutional movements is through the results of the Coinbase Pro exchange. Exchange usually integrates its custody wallets into its over-the-counter tables, through which institutions they normally work to minimize the impact on the spot markets. The exits are considered to represent the institutional activity on the BTC market.
According to CryptoQuants tracker “BTC: Coinbase Pro Outflow”, there were four significant exits from Coinbase in April. This BTC may have been included in Coinbase’s custody letters for OTC trading.
Ju explained in more detail: “Institutions like Tesla use the Coinbase Prime Broker to buy or sell BTC. It would be massive orders that can affect the price of BTC. Coinbase’s premium has been negative / neutral for the past 7 weeks but has been getting worse lately positive and hit an all-time high a week ago.“”
The Coinbase Premium Gap measures the price difference between BTC and Coinbase Pro and Binance. The bigger the gap – and the higher the premium – the stronger the spot buying pressure on Coinbase.
As Bitcoin continues to rebound from its mid-April decline, it is clear that institutional interest in the asset continues to rise despite recent price volatility. While the impending expiry of the $ 4.2 billion options will not have a major economic impact on option holders, it is very likely that downward pressure on BTC will move away from the current maximum price of $ 54,000 once the options expire.