Bitcoin is again experiencing moderate price turbulence while heading into the monthly options expiration.
The cryptocurrency is trading near $47,000 at press time, representing a 4.4% drop on the day, CoinDesk 20 data show. The decline has reversed Wednesday’s 2.7% gain and exposed the widely tracked 200-day moving average (MA) line located at $46,040.
“What we are seeing is typical pre-expiry price volatility,” said Phillipe Bekhazi, CEO at XBTO Group. “[The] market generally rebounds after monthly settlement.”
A total of 42,500 option contracts worth roughly $2 billion are set to expire on Friday, according to data provided by Skew. The dominant crypto options exchange Deribit will settle the majority of open interest at 8:00 UTC.
Bitcoin: Options open interest by expiry Source: Skew
Data since January show bitcoin (BTC, -0.68%) tends to move toward the “max pain” point in the lead up to the expiration and sees a solid directional move in days after settlement. In traditional market theory, this behavior results from option sellers, mostly institutions, manipulating the spot market to push prices closer to the strike price at which the highest number of open options contracts expire worthlessly, yielding maximum losses – or maximum pain – for option buyers and minimizing losses for the sellers.
History seems to be repeating itself, as the max pain point for Friday’s monthly expiration is $44,000, according to Deribit. The options market has also flipped bearish for the short term, with the one-week put-call skew reporting positive values at press time. That’s a sign of short-term puts, or bearish bets, drawing higher demand than calls. The one-month skew is neutral, while the three- and six-month skews are still trading negative, indicating a long-term bullish bias.
Bitcoin put-call skews Source: Skew
A continued inflow of BTC onto crypto exchanges could also bring some price volatility. Blockchain analytics firm CryptoQuant data show Huobi exchange received 23,256 BTC at 06:08 UTC today.
“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 increased price turbulence.
“Bitcoin reserve across all exchanges is increasing lately, and this could affect the market in the short term,” Ju said. “These Bitcoins could be sold, used as collateral for derivative trading, or used for altcoin trading. Either way, it increases the market volatility.”
From a technical analysis standpoint, the immediate bias has flipped bearish owing to the cryptocurrency’s failure to keep gains above $50,000 earlier this week.
“Both bitcoin and ether (ETH, -0.28%) confirmed short-term counter-trend ‘sell’ signals per the DeMARK Indicators, which have been fairly timely in the past as indicators of short-term inflections,” Katie Stockton, founder, and managing partner of Fairlead Strategies, said in an email. “The message is for another 1-2 weeks of sideways-to-lower price action.”
Stockton added that while the intermediate-term momentum remains positive, some risk management may be necessary for the very near term, given the 50-day MA at $39,652 is the initial support. Meanwhile, XBTO’s Bekhazi mentioned $46,800 as key support.