More than $6 billion, the largest ever Bitcoin option contract will expire on March 26, which is equivalent to 100,400 Bitcoins.
The previous record came in January 2021, when nearly $4 billion worth of options expired, representing 36 percent of open futures contracts.
The options market size and the number of open positions are increasing, so is the influence on the spot market. As we all know, the derivatives market is an important tool for spot market price.
In the traditional gold, stock, and other financial markets, the derivatives market’s size is usually several times the size of the spot market. But in Bitcoin, the situation is the opposite, the Bitcoin spot market is now several times the derivatives market, but investors want to look for price from the futures market and assess the market atmosphere.
Sam Bankman-Fried, CEO of cryptocurrency derivatives exchange FTX, said：
Bitcoin derivatives have been the main pulling force in the spot market for several years, and since 2018, derivatives-driven spot markets have appeared more frequently than spot-market-driven derivatives.
As the number of open positions increases, so does the impact of options on the spot market. How much influence will remain is to be seen, but the choice of large whale trading will have an impact on the price of the BTC. Options can also be considered as one of several leading indicators of the spot market.
Over the past week, Bitcoin is seeing a decline in price, from the $60,000 range on March 19 to the $50,000 range on March 25. This decline has led investors to question the real value of Bitcoin and wonder if the long uptrend is coming to an end.
However, the expiration of the $ 6 billion contracts could trigger a shift in the atmosphere.
Sam Bankman-Fried further explained that：
The cryptocurrency industry is bullish.This can be seen in many ways, from the positive spread of futures, to the permanent financing rate, and then look at the dollar lending rate. These are all bullish signals for crypto.
Robbie Liu, an analyst at the research team of cryptocurrency exchange OKEx, said：
The expiration of major options is usually accompanied by an increase in spot volatility, as is Futures.
Another noteworthy aspect is that the current one-month real volatility is at its lowest level in 2021, and the implied volatility level is the lowest since December 2020. Lower implied volatility represents a lower premium and makes it cheaper for investors to trade-in options.
Bitcoin continues to see more institutional adoption after Tesla began to accept US customers to pay Bitcoin for buying cars. This led to another “Elon candle” in the market, motivating the Bitcoin price to rise by $ 3,000, but the rally subsided the next day.
Nevertheless, options expiration may remove the Bitcoin market’s current downward pressure and allow the market to turn more bullish again, as the options market still shows a tendency to be bullish.