Over $8B option expiry could send ‘gold’s biggest rival’ tumbling

By TheStreet Roundtable

about 19 hours ago

BULLISH

JPMORGAN

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Bitcoin (BTC) options worth roughly $7.9 billion are set to expire on Deribit this Friday, April 24, and for a market that's already on edge, the timing matters.

Options are financial contracts that give buyers the right, but not the obligation, to buy or sell an asset at a set price on a future date.

Think of it like putting a deposit on a concert ticket at today's price, hoping the show sells out and the ticket becomes more valuable.

A "call" option is a bet that the price goes up, while a "put" option is a bet that it goes down. When billions of these contracts expire on the same day, the resulting trading activity can move markets significantly.

Deribit, the derivatives exchange platform hosting this expiry, now holds around $31 billion in total Bitcoin options open interest. Currently, it is the largest of any exchange globally, surpassing even BlackRock's IBIT, which stands near $28.8 billion.

In other words, the world's most recognised asset manager is being outpaced by a crypto-native derivatives exchange.

Bitcoin Options Open Interest (Source: Checkonchain)

Two price levels every Bitcoin watcher should know

Positioning data points to $75,000 and $62,000 as the two levels to watch for gold's biggest rival heading into Friday.

At $75,000, roughly $395 million in "call" open interest is clustered. This is a sign that bullish traders have been placing their bets here.

But there's a complication. "Gamma exposure" at this level is deeply negative. This means that market makers who sold these contracts are forced to keep adjusting their positions as prices move.

When Bitcoin rises, they buy more. When it falls, they sell more. The result is that price swings get amplified but not smoothed out.

At the time of writing, Bitcoin sits at $75,348, as per CoinGecko, less than half a percent above this level.

On the downside, $62,000 carries around $330 million in "put" open interest. This is the main zone where bearish traders have concentrated their protection. A drop to that level from current prices would mean an 18% decline.

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The 'max pain' magnet and what bears are doing

Sitting between these two extremes is the $71,000 max pain level, the price at which the greatest number of options contracts would expire worthless, causing the most financial pain to options buyers collectively.

Markets often gravitate toward this level as expiry approaches, though it shifts as trading activity changes. Unlike March, when Bitcoin was trading below its max pain level, it currently sits above it.

Adding another layer, funding rates in perpetual futures remain negative, signalling a build-up of short positions.

Perpetual futures are a type of derivative contract that lets you bet on the price of an asset, like Bitcoin, going up or down, without ever actually owning it. Unlike regular futures contracts, they have no expiry date, meaning you can hold your position for as long as you want. But they also carry a high amount of risk.

In perpetual futures, a periodic payment called the funding rate flows between the two sides of a trade. When it is positive, bullish traders pay the bearish ones; when negative, it is the bears paying the bulls.

The negative reading right now means that short sellers are so confident in a price decline that they are willing to keep paying a fee to hold their positions open.

Now, if Bitcoin holds above $75,000 and refuses to fall, those bearish traders face mounting losses on both their positions and the fees they continue to pay. At some point, they will be forced to cut their losses by buying Bitcoin back. And a wave of buying could push Bitcoin prices even higher.

This will be a short squeeze scenario where an excess of bearish bets ironically becomes the fuel for an upward price move.