The volatility of Bitcoin could increase as leading exchanges must liquidate their monthly options contracts in the next few days. The most significant loss that buyers could face is that the price remains at USD 58,000 upon settlement.
Bitcoin put options contracts continue to become increasingly expensive, which implies a bearish sentiment in the market. However, the volatility of Bitcoin could increase as leading exchanges must settle their monthly options contracts in the coming days.
The quarterly bias of put options measures the cost of put options concerning call options. Data analytics firm Skew said that it has turned positive and reached 3%.
That positive bias shows that put options generate higher prices or demands than call options or bullish bets. At the beginning of November, the quarterly indicator stood at -5%, which indicated an upward trend in the market.
Market Operators Could Be Adding Downside Protection against Large Positions
However, a positive bias does not necessarily mean that market operators are taking bets on a downward trend. On the contrary, they could be adding downside protection against significant positions in the spot or futures markets of Bitcoin.
That behavior of the price of Bitcoin indicates a general fear in the market, which would be justifiable. The value of the pioneering cryptocurrency dropped by 16% after reaching an all-time high of USD 68,990 on November 10th.
The Liquidation of BTC Options Could Affect Investors
Data from the Skew platform reveal that exchanges will settle 51,900 Bitcoin options contracts worth USD 3 billion in the coming days. For example, crypto options exchange Deribit will liquidate around USD 2.5 billion worth of Bitcoin options.
Most of those options contracts are in a group of call options at prices well above the all-time high of Bitcoin. The most significant loss that buyers of Bitcoin options could face is that the value of the cryptocurrency remains at USD 58,000 upon liquidation.
The manipulation of the market, also known as Max Pain or maximum pain, functions as a magnet as it heads towards liquidation time. At that moment, option sellers, generally large institutions, buy or sell the underlying asset to keep prices at crucial levels. With that strategy, they seek to inflict maximum loss on market buyers.
The Price of Bitcoin Usually Increases After the Expiration of Options
There is no evidence that sellers use such strategies as Max Pain in the Bitcoin market, but Bitcoin has moved similarly on other occasions. It stood at a minimum before the expiration of the options. However, the price of Bitcoin usually begins a process of volatile increase after those behaviors.
For that reason, nobody rules out the prospects for highly volatile behavior in the Bitcoin market in the coming days. In addition, trading volumes are likely to be low due to the Thanksgiving holiday.
Bitcoin is trading at around USD 54,364 and has accumulated a loss of 0.9% in the last 24 hours. Its trading volume is above USD 23.2 billion, and its market capitalization is about USD 1.02 trillion, according to CoinGecko.
By Alexander Salazar
