Bitcoin is experiencing moderate price turbulence again as it moves towards the expiration of its monthly options.
The cryptocurrency is trading near $47,000 at the time of writing, representing a 4.4% drop on the day, data from CoinDesk 20 shows. The drop reversed Wednesday’s 2.7% gain. and exposed the widely followed 200-day moving average (MA) line at $46,040.
“What we are seeing is typical pre-expiration price volatility,” said Phillipe Bekhazi, CEO of XBTO Group. “[The] market generally recovers after monthly settlement.”
According to data from Skew, a total of 42,500 options contracts worth about $2 billion expire on Friday. The dominant crypto options exchange Deribit will settle the majority of the outstanding interest at 8:00 UTC.
Facts since January show bitcoin tends to move toward the “max pain” point leading up to expiration and sees solid directional movement in days after settling. In traditional market theory, this behavior results from option sellers, usually institutions, manipulating the spot market to bring prices closer to the strike price at which the greatest number of open option contracts expire worthless, causing maximum losses – or maximum pain – for option buyers. and minimizing losses for the sellers.
History seems to be repeating itself, as the maximum pain point for Friday’s monthly due date is $44,000, according to Deribit. The options market has also turned bearish for the near term, with the one-week put-call skew reporting positive values at the time of writing. That’s a sign of short-term puts, or bearish bets, drawing more demand than calls. The one-month skew is neutral, while the three- and six-month skew is still negative, indicating a long-term bullish bias.
A sequel influx of BTC on crypto exchanges can also cause some price volatility. Blockchain analytics firm CryptoQuant data shows that Huobi exchange received 23,256 BTC today at 06:08 UTC.
“It’s an actual deposit from a user,” CryptoQuant CEO Ki-Young Ju told CoinDesk in a Telegram chat. Users typically transfer bitcoins to exchanges when they plan to liquidate holdings or sell coins to fund derivatives and alternative cryptocurrency trading, leading to more price turbulence.
“Bitcoin reserve on all exchanges has been increasing lately, and this could have short-term implications for the market,” Ju said. “These Bitcoins can be sold, used as collateral for derivatives trading or used for altcoin trading. Either way, it increases market volatility.”
From a technical analysis standpoint, the immediate bias has turned bearish due to the cryptocurrency’s failure to keep gains above $50,000 earlier this week.
“Both bitcoin and ether confirmed short-term countertrend ‘sell’ signals according to the DeMARK indicators, which have historically been fairly current as indicators of short-term inflections,” said Katie Stockton, founder and managing partner of Fairlead Strategies, in an email. “The message is from sideways to lower price action for another 1-2 weeks.”
Stockton added that while medium-term momentum remains positive, some very short-term risk management may be necessary as the 50-day MA of $39,652 is the first support. Meanwhile, XBTO’s Bekhazi cited $46,800 as key support.