The crypto market in January didn’t experience the expected surge, even with the SEC’s approval of a spot Bitcoin ETF. This event, anticipated to drive substantial buying, fell short in defending the outflows from Grayscale’s GBTC, which continued to pressure the market downwards. However, the scenario might intensify soon, as nearly $5.8 billion worth of Bitcoin and Ethereum options are on the edge of expiring. This event could introduce significant price volatility, particularly as the market is below the ‘max pain point.’
Selling Pressure Might Get Triggered
On January 26 at 08:00 UTC, weekly option expiry is set to occur with the expiration of an immense $5.82 billion in options for Bitcoin (BTC) and Ethereum (ETH). This could play a crucial role in validating the upcoming trend for the market in February.
The breakdown of these options shows $3.73 billion tied to BTC and $2.05 billion linked to ETH, presenting an interesting trend for these two major cryptocurrencies. In the case of Bitcoin, the put/call ratio stands at 0.52, highlighting a significant concentration of interest in call options.
Notably, the ‘max pain point’ for Bitcoin is identified at $41,000, while there is a substantial open interest exceeding $361 million at the higher strike price of $50,000.
The max pain point represents the price level at which the holders of options are likely to face the greatest losses at the time of expiration. In traditional financial markets, it is theorized that sellers of options, often institutions with considerable financial resources, attempt to control the spot market toward this max pain point as the expiration date approaches. This is aimed at maximizing losses for the buyers of the options.
As Bitcoin currently trades below the max pain point, there’s a rising concern for an increased selling pressure tomorrow. Investors holding call options may face losses as their options become worthless if the price is below the strike price. This could lead to increased selling pressure as investors try to minimize losses or cover their positions. If BTC price loses the $40K mark, we can see a retest of the support near $38,000.
$200M Ethereum Calls At Risk Near $2,400
The situation with Ethereum options presents a different picture, as seen by a relatively lower put/call ratio of 0.31 and a ‘max pain point’ set at $2,300. Additionally, there’s a notable open interest, approximately $200 million, centered around the $2,400 price mark. Call holders are predominantly positioned to face the most significant losses tomorrow.
With Ethereum currently trading well below its max pain point, this indicates a likelihood of increased selling pressure in the upcoming hours. As traders prepare for losses, this scenario could trigger extensive liquidations in the market.
However, this is generally favorable for option writers (sellers) as they get to keep the premium paid by the option buyers without having to deliver the underlying asset or pay out cash.
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