On Friday, bitcoin options or derivative contracts worth billions will expire on the Deribit crypto exchange. Traders may note that the dynamics of the expiration are such that BTC’s market price may rise towards a very specific point: $75,000.
Deribit, the world’s largest crypto options exchange, will settle $14.16 billion worth of bitcoin options contracts on Friday at 08:00 UTC. That means nearly 40% of all open interest – the dollar value of all active contracts on the exchange – is set to expire in about 48 hours. On Deribit, one option contract represents one BTC.
Options are contracts that let you 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 rise, and a put option is a bet that it will go down. Traders buy options to try to take advantage of price fluctuations, or write (short) options to make money while assuming the risk of prices moving in favor of the buyer.
Here’s why expiration is important
According to Deribit’s data, the ‘max pain’ price – the level at which most contracts would expire worthless (lottery tickets that don’t win) – is right at $75,000.
As such, this level could act as a magnet, according to Deribit’s Chief Commercial Officer Jean-David Péquignot.
“With Bitcoin currently trading near $71k, the $75k Max Pain price represents a gravitational pull. Historically, this encourages delta hedging by market makers who can drive prices towards the strike, where most options expire worthless,” Péquignot told CoinDesk.
This is how it works. According to the max pain theory, option writers – typically large funds, institutions or market makers with ample capital – control or influence the spot price against the pain point in order to limit payouts to buyers and thereby inflict maximum damage on them. This is done through normal trading in the spot or futures markets rather than as a guaranteed manipulation.
This mechanical buying and selling often pulls the spot price closer to the maximum pain level, which is $75,000 in bitcoin’s case.
While max pain is well known in traditional markets, its impact on crypto is still debated. However, Deribit marks the level as a potential magnet. Adding to the intrigue, several analysts have identified $75,000 as key resistance above which bitcoin could go in full-bull fashion.
Controlled expiration
Quarterly expirations typically trigger massive position adjustments and hedging flows. Still, the impending expiration is likely to unfold normally without too much of a spike in volatility.
This is evident from the fall in the implied volatility index.
“Over the last few sessions, we have witnessed an implied volatility (IV) compression, with both BTC and ETH DVOL falling by ~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 the market data suggests that traders are not chasing a breakout as geopolitical uncertainty in the form of war in Iran continues. He specifically pointed to institutional call writing at higher strikes (levels above the going spot price) as evidence of measured bullish sentiment. Traders typically write overhead 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 sell-side calls suggests a cap above institutional resistance as traders have overwritten their positions at the bank premium as they wait for the geopolitical clock to run out,” he noted.
All in all, the big exit with $75,000 acting like a magnet comes at an exciting time: bitcoin has held up remarkably well through the Iran war turbulence, maintaining strength even as stocks falter and energy markets remain volatile.
