Simply put
- About $17 billion worth of Bitcoin options are set to expire on Friday, marking a significant milestone.
- Experts caution that if prices drop below $108,000, it might trigger forced sell-offs, potentially pushing values down to $96,000.
- On a brighter note, easing inflation could relieve some pressure, possibly leading to a market rebound later this year.
Right now, the crypto market is under some serious scrutiny. The timing of quarterly options expiration coincides with important US inflation figures, creating a situation where rallies could either gain steam or falter.
As the third quarter wraps up on Friday, about $22.3 billion in crypto options are expiring, according to data from the Options Exchange. Notably, the Bitcoin options have an expected value of around $17.06 billion at expiration.
Greg Magadini, who directs derivatives at Options Analytics platform Amberdata, mentioned that the current Bitcoin expiration cycle is crucial.
Magadini notes that dealers are heavily short on gamma at around $109,000 and $108,000, which means these price levels are critical to stabilize the market and avoid sudden shifts.
Bitcoin’s shorter-term price movements are heavily influenced by options dealers and larger institutions that adjust their hedges in real-time. This “gamma” exposure can either heighten or dampen volatility.
When dealers hold short gamma positions, there’s a risk they might have to sell into a declining market.
Data suggests that $108,000 is a key point for Bitcoin traders. Falling below this threshold could set off a selling cascade, independent of the August core PCE release.
With the current short gamma positioning of dealers and volatility around 35%, Magadini anticipates that a drop below $108,000 could result in significant price movement, especially in a lackluster market.
Bitcoin is trading at $109,100, experiencing a 3.8% drop on Thursday. Over the past week, major cryptocurrencies have lost about 6.5% of their value.
The focus now is on the core PCE release scheduled for 8:30 AM today, with expectations around a monthly increase of 0.2%, slightly down from last month’s 0.3% estimate.
If the release exceeds expectations, it could further reinforce the recent strength of the dollar and complicate Bitcoin’s ongoing challenges, as noted by experts.
On the flip side, a softer core PCE could ease the impact of options expiration, potentially allowing for more volatile movements, according to Maja Vujinovic, CEO and co-founder of FG Nexus, which focuses on digital assets.
Despite some lighthearted reactions to the inflation report, Vujinovic remains optimistic about the upcoming fourth quarter for the crypto market, driven by improved demand and liquidity in spot exchange funds.
Magadini echoed this outlook, acknowledging that there’s a risk of downward pressure in the short term, driven by uncertainties surrounding the Federal Reserve and weaknesses in risk assets.
He also mentioned a long-term view, suggesting that if the fight against inflation was halted, Bitcoin could easily exceed $250,000 in the future.
Additionally, options data indicates a bullish sentiment for Bitcoin in the long run, evidenced by the purchase of numerous year-end call options with strike prices at $120,000 and $140,000.
