How does the expiry of $6 billion quarterly futures options affect the crypto market?
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fragile market sentiment
A few days ago, the price of Bitcoin started to rebound after falling below $29,000. Overall, the performance of Bitcoin and Ethereum has been lackluster over the past month. Bitcoin has repeatedly failed to break through the $40,000 resistance level, and even fell to $28,800 at one point, making investors terrified.
Whenever the market plummets, investors are quick to look for external reasons. But in fact, 6 weeks before the plunge, that is, from the end of April, China has released a signal to crack down on cryptocurrency mining, and the market seems to have underestimated the regulatory strength. Clearance) caused greater market panic.
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In addition to the negative policy, the recent poor performance of the encryption market is also due to many reasons such as institutional profit-making selling pressure, and the derivatives market is also considered by some analysts to be an important factor affecting short-term trends.
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Bitcoin and Ethereum Quarterly Options Expires
On June 25, quarterly futures and options on $6 billion in bitcoin and ethereum will expire. According to data analysis, if the price of Bitcoin closes below $32,000, short sellers will make a huge profit of $450 million.
In addition, the expiration of the $1.5 billion Ethereum monthly option will be another important moment. If it closes below $2,200, 73% of neutral and call options will suffer serious losses.
Currently, open interest in ether options expiring this Friday has risen to $1.36 billion, compared with $500 million in futures contracts. Bitcoin’s options open interest has grown to $2.64 billion, with futures size at $1.44 billion.
So, will the expiration of quarterly option futures in the derivatives market have a significant impact on prices? Let's look at historical data.
December 2020 and March 2021 quarterly option expirations move in different directions
In November 2020, Bitcoin rallied strongly, with a cumulative increase of 75% before the expiration of quarterly options. Although more than 102,000 bitcoin options expired on Christmas Day, they had no significant impact on the market. Bitcoin then rose 69% in the ensuing 12 days, continuing the bull market trend.
March 2021 showed a completely different price trend, with the price of Bitcoin plummeting 14% before the expiration of the quarterly options, but fully recovering the decline in the next 4 days. Although this period of time is more bearish (Fed Chairman Powell said, "Bitcoin is too volatile to become a currency, and there is no value support"; Bridgewater Fund founder Dario also expressed concern about the possible "U.S. Bitcoin ban" expressed concern), but Bitcoin quickly rebounded after the drop.
No signs of selling ahead of March, June and September 2020 quarterly options expirations
In the ten days leading up to March 26, 2020 (the quarterly options expiration), Bitcoin rallied 31%. However, an 11% retracement occurred the next day, and some investors believed that there was "manipulation" in the derivatives market. However, a 45% plunge in Bitcoin’s hash rate at the time may have been a more appropriate justification for the plunge.
On June 26, 2020, the quarterly option expiration also did not have a significant impact on the price, as Bitcoin dropped only 2% the day before and another 2% over the next two days.
According to the expiry data of the above five quarters, there is no sign that the expiry of derivatives will cause the skyrocketing and plummeting of bitcoin prices, and more reasons are due to the trend of the market itself and the impact of major policies.
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Two worlds of fire and ice at home and abroad
Look at the traditional market situation first. U.S. traditional markets rose to new highs overnight after U.S. President Joe Biden said he had reached agreement with the Senate on a $953 billion bipartisan infrastructure spending plan. After the news was announced, the S&P 500 and Nasdaq hit new intraday highs, closing up 24.65 points and 97.98 points respectively, while the Dow rose more than 322 points on the day. The overall economic environment remains accommodative.
Look at the cryptocurrency industry. In stark contrast to domestic regulatory attitudes, foreign countries are accelerating the development of the cryptocurrency industry recently.
June 22
New York Digital Investment Group (NYDIG) announced that it will cooperate with Q2, a company that provides digital services for financial institutions, to provide bitcoin transaction services for bank users. The partnership may offer the more than 18.3 million U.S.-registered users on the Q2 platform to buy, sell and hold bitcoin.
June 24
Top venture capital firm Andreessen Horowitz (a16z) is launching a $2.2 billion cryptocurrency fund called CryptoFund III, the largest crypto venture fund ever. At present, the venture capital giant has managed US$865 million in funds through two early-stage funds, and its encrypted asset asset management scale (AUM) has exceeded US$3 billion.
June 25
President Nayib Bukele of El Salvador stated that Bitcoin will become legal tender on September 7, while the U.S. dollar will continue to circulate, and whether to use Bitcoin will be optional. Salaries and pensions will continue to be deposited in U.S. dollars. El Salvador will launch an e-wallet (compatible with other wallets) in September, and pre-deposit $30 in bitcoins for those who download the wallet.
June 25
Paraguayan MP Carlitos Rejala reposted an article from foreign media today on "Paraguay plans to propose a bill to make Bitcoin a legal tender". According to the article, Paraguay plans to build an encryption center and promote clean energy mining, which may be officially announced on July 14.
June 25
There are various indications that the development trajectory of the cryptocurrency industry is similar to the early Internet. Although there are certain bubbles, it has gradually been adopted by the mainstream, representing the development trend of a new generation of society.
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DeFi development encounters bottleneck
Finally, regarding the growth of DeFi users, although the overall data is still rising, the month-on-month growth has begun to decline recently, with an increase of 18% in April, 25% in May, and 12% in June.
