Bitcoin faces the expiration of a huge number of options contracts, which could exacerbate the pressures on a market already suffering from weak institutional demand and macroeconomic pressures.
Bitcoin options contracts with a nominal value of nearly $10 billion are set to expire on Deribit, the world’s largest cryptocurrency options trading platform, at 4 p.m. Singapore time on Friday.
Given that most of these contracts bet on rising prices, and with the current decline in the price of Bitcoin, traders may be inclined to take defensive positions or adopt a more pessimistic outlook.
Bitcoin investment positions turn loss-making
Jean-David Picqueno, trading director at Deribet, said: These are investment positions that were betting on price increases in the medium term, but are now being valued in light of the falling spot price. Most of the long positions that were betting on price rises are now out of profit.
Bitcoin fell to $59,023 during Wednesday's trading in New York, its lowest level since October 2024, before rising to around $61,650 at 9:20 a.m. in London on Thursday.
Bitcoin is still struggling to regain momentum since the market crash on October 10, and has fallen by more than 50% from its record high.
The world's largest cryptocurrency is also trading below its 200-week moving average, a technical level that could indicate a prolonged bear market.
Bitcoin options contracts due on the Deribet platform constitute approximately 37% of the total outstanding positions in the market, which represents the total number of currently active contracts.
Bets on Bitcoin's rise and fall vary
Pekinio said the ratio of sell contracts to buy contracts is 0.83, indicating that bets on Bitcoin rising still outweigh bets on it falling.
However, the majority of existing long positions are now unprofitable, meaning these contracts hold no intrinsic value at current price levels. Conversely, short positions are concentrated in two main ranges: between $60,000 and $65,000, and between $70,000 and $75,000. Investment positions indicate that bets on price declines are more likely to yield returns.
In this regard, Adam Hems, head of asset management at Tesseract Group, said: Expiration mechanisms help to clear existing positions, but they do not determine the direction of the market.
He added that the main problem is that the market still strongly favors buy contracts, coinciding with the usual decline in liquidity at the end of the financial quarter and the beginning of the summer season.
All eyes are on Bitcoin's moves tomorrow.
Hymes says that the decline in liquidity coinciding with the expiration of a huge number of contracts means that any price movement on Friday will be exaggerated in the direction in which the flows first begin, before prices return to their normal average once the market makers' hedging operations are over.
Market makers' hedging refers to the deals they make to manage exposure resulting from price fluctuations.
Any sharp price movement near contract expiry dates may reflect the structure of existing positions and subsequent closures, rather than a fundamental shift in market direction. Hymes noted that the true test for the market will come in the first week of July, after the liquidation of positions made during the quarter and the reduction in leverage.
Furthermore, the underlying market environment has deteriorated, independent of the volatility in financial derivatives. Bitcoin exchange-traded funds (ETFs) in the United States have seen outflows of $3 billion since the beginning of June, according to data compiled by Bloomberg.
Strategic approach in the face of financial pressures
At the same time, Strategy, as the largest institutional owner of Bitcoin, is facing increasing pressure amid investor concerns about its ability to meet its financial obligations.
Cryptocurrencies are also under pressure from macroeconomic factors, as the prospect of rising interest rates pushes investors away from assets that do not provide a periodic return.
Griffin Ardern, co-founder of Primal, said that options traders' bets on a long-term decline in Bitcoin have intensified, while hawkish statements from Federal Reserve officials and rising US Treasury yields indicate that investors are beginning to adjust to a tighter, less liquid monetary environment. He added: Bitcoin often struggles to perform well in conditions of reduced liquidity.
