A record amount of bitcoin’s options contracts worth $6 billion are expiring today. Earlier, $4 billion in options contracts had expired in January. The action in the derivatives market is most likely to dictate the price trend in the cryptocurrency over the next few months.
An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset.
Experts warn that in a bearish setup, prices of the world’s biggest cryptocurrency could fall towards the $44,000 level or even lower. However, in the event of no major fall, the digital asset outlook may turn bullish.
The influence of the options market on bitcoin’s spot market has increased over the past few months. We tell you what the expiry means for investors and how they can position themselves in the market.
Prices of bitcoin had cracked over 10% on Thursday ahead of the bitcoin but have recovered a bit ever since.
Even as bitcoin recovered to quote over the $53,000 level on Friday morning, traders are betting that it will plunge to a low of $44,000 on Friday evening, when the options contracts are set to expire. The level is being referred to as “max pain” in the investing parlance.
“We are reaching a juncture that is referred to as “max pain” when a record $6 billion of options contracts are set to expire. We hope that on Friday too, bitcoin doesn’t witness too much correction. We expect it to be sticking around $44,000-45,000 zone,” said Sumit Gupta, CEO and co-founder, CoinDCX.
At this point, multiple things could happen because there’s a lot of money that gets settled on the expiry and there’s a new position that is taken. Depending upon where the position is, the bitcoin prices will keep on changing.
According to experts, at the expiry on Friday, we may not see major movement, but post expiry, there could be big movements or even a correction.
“There’s a 70% chance that there will be a bearish April, and prices may catch up again in May and prices may rise again. In April, there won’t be a major crash, but a slow movement downwards. If the correction happens, the first level to watch out for is $44,000 level and then $28,000 level. Ideally, if bitcoin goes till $48,000, it will be a good correction,” said Siddharth Menon, co-founder and COO, WazirX.
The $44,000 level has been a good support line for bitcoin. Whenever the price had come close to $43,000, it always had a rebound. According to Menon, bitcoin has been following this uptrend line. “But if it breaks $44,000, there’s a chance that prices may hit $28,000-$31,000 zone in the most bearish scenario. With markets and levels like this, there is a higher probability of weakness in the prices,” he added.
To minimize the downward risk, Menon suggests that the best way to trade is to keep a small part liquidated and in a disciplined manner enter the market if prices hit the lower levels.