Why the Market is Down with Bitcoin Options Expiring

  • The crypto market cap bounced at a support level after breaking out from the $1.04 trillion resistance area.
  • A large volume of Bitcoin options is set to expire today (February 24th) at around 4 pm UTC
  • The last major contract expiry occurred late in December of 2022.

The crypto market cap has been fluctuating within a key resistance area but remains above the recently validated $1.04 trillion support level. The possibility of a bearish reversal remains as traders are closely monitoring the put/call ratio with a large volume of Bitcoin options set to expire today. These are the things that you should be looking out for.

Support Validation and Bearish Divergence on The Market Cap 

On February 15th, the market cap had broken through the $1.04 trillion resistance level and validated this level as support over the following two days. By February 21st, it had increased to a high of $1.1 trillion, but a bearish divergence on the daily RSI caused another downward movement for the market cap. 

Analysis of the total cryptocurrency market cap chart highlighted several key reasons for how this downtrend came to be.

On February 22nd, a long lower wick validated the $1.04 trillion level as support, suggesting upward movement towards $1.16 trillion to be the most likely scenario. However, a bearish reversal remains a possibility since the daily RSI has not yet broken out from its bearish divergence trend line. Which could indicate further downwards movement. 

If the crypto market cap breaks down below the current trading level at $1.04 trillion, it would suggest a bearish trend and could result in lows near $960 billion. 

At press time, the focus of the cryptocurrency market is on Bitcoin, with the expiration of options scheduled for today being the decisive factor.

CRYPTOCAP Daily Chart. Source: TradingView

CRYPTOCAP Daily Chart. Source: TradingView

The Potential Impact of the Options Expiry

Today, approximately $1.8 billion worth of Bitcoin options contracts are set to expire, which could generate volatility in short-term price movement for BTC. The asset’s Open Interest, which represents the total amount of outstanding derivative contracts that have not yet been settled, has reached 300,000. 

Bitcoin options contracts allow traders to speculate on the price of BTC by buying (call) or selling (put) Bitcoin at a specific price at a certain expiry date; past performances of these contracts are often used as indicators for short-term future price action via ratios. Colin Wu, an Industry analyst, reported that this put/call ratio was 0.66, while Deribit had presented a different value. 

The 24-hour ratio on Deribit currently stands at 0.81, indicating that the difference between longs and shorts is relatively small. A put/call ratio of 0.7 or higher often signals that traders are leaning towards puts over calls, hinting at a bearish sentiment. 

Deribit notes that during the last major contract expiry in late December, about 135,000 contracts were liquidated, leading to a 1% drop in BTC prices when it was trading near the $17,000 area. However, since then, the asset has risen by 45%, implying that the current expiry’s impact could be more substantial.

While at press time much of the market cap’s decline has been due to little more than selling pressure, the imminent expiry is projected to create more bearish pressure onto cryptocurrency assets.

On the Flipside

  • Despite the recent bounce, the current crypto market cap is still well below its all-time high of $3.08 trillion.
  • Bitcoin options are a highly speculative financial instrument and may not accurately reflect the actual market sentiment.
  • The put/call ratio for Bitcoin options is just one factor that can impact market sentiment and price movements. Other factors include macroeconomic conditions, regulatory changes, and global news events.
  • While technical analysis is a standard method for predicting price movements, all charts have multiple interpretations. DailyCoin does not provide financial advice. Due diligence and research are always encouraged.

Why You Should Care

With the expiration of $1.8 billion worth of Bitcoin options contracts, there is a likelihood of an impact on the short-term price movement for BTC. Traders are currently buying more puts than calls, which generally suggests a growing bearish sentiment in the market. This could have implications for the overall crypto market.

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