Bitcoin and Ethereum Outlook Amid the Expiry of $18 Billion Options

30 Aralık 2024

Bitcoin and Ethereum Outlook Amid the Expiry of $18 Billion Options: Where Are Prices Heading?

Written by: Rania Gule, Senior Market Analyst at XS.com

Bitcoin’s price has dropped from its all-time highs, followed by a 3-day correction, and it is likely to retest support at $31,328. The cryptocurrency market has seen significant developments in recent days, with the expiration of $18 billion worth of options contracts for Bitcoin and Ethereum, which I believe is a record that reflects the increasing activity in this space. This historical moment could be a turning point for the market, potentially leading to unprecedented volatility and price movements that may reshape future expectations.

The total value of the expired Bitcoin options contracts reached approximately $14.38 billion, while Ethereum’s options amounted to $3.7 billion. In my view, the large volumes of these contracts reflect the market’s growing expectations of profit-taking or risk-hedging, serving as an indicator of future trends. The volume of expired Bitcoin contracts reached 88,537 contracts, while Ethereum saw 796,021 contracts. This massive volume suggests diverging expectations among investors regarding the future paths of these assets.

Notably, the put-to-call (P/C) ratios for both Bitcoin and Ethereum have shown differing trends. Bitcoin’s ratio reached 0.69, indicating investor optimism and confidence in price increases. In contrast, Ethereum’s ratio dropped to 0.41, reflecting strong confidence in Ethereum’s ability to achieve further gains. In my opinion, these low ratios indicate increased interest in call options compared to puts, reflecting a positive outlook on the market.

I believe these expectations are further supported by the fact that both Bitcoin and Ethereum are trading above their respective “maximum floor prices.” For Bitcoin, this price is $85,000, and for Ethereum, it is $3,000. This concept refers to the level at which option buyers face the greatest losses at expiry, and prices often tend to gravitate towards these points. Additionally, the prices staying above these levels reflect the market’s resilience and its readiness for new upward movements.

The increased hedging sentiment has also played a significant role in boosting Bitcoin’s call-to-put ratio during the fourth quarter of 2024. The growing demand for performance protection as the year ends led to a doubling of the ratio from 0.35 to more than 0.70. This shift reflects investors hedging against the risks associated with the usual seasonal volatility at year-end. On the other hand, Ethereum shows a completely different sentiment. Its call-to-put ratio dropped from 0.97 in October to 0.41 currently, indicating strong confidence in Ethereum’s potential to continue growing and stabilizing. This contrast between the two coins, in my view, points to differing investor strategies, with some viewing Bitcoin as a hedge, while others are betting on Ethereum as a growth investment.

With the expiration of the standard options contracts in the past two days, the market now faces the possibility of sharp movements if prices deviate significantly from expectations. This moment could mark the beginning of a new chapter in the cryptocurrency world as we enter 2025, with investors preparing for the likelihood of increased volatility. Since financial positions currently lean toward the bullish side, any sudden changes could lead to major adjustments in market trends.

Amid these developments, Bitcoin’s on-chain indicators show positive signs with increasing buying pressure on centralized exchanges. The influx of capital into Bitcoin ETFs has played a crucial role in supporting prices this year, reflecting, in my view, growing institutional interest in the asset. These moves suggest a shift in market trends, with greater institutional involvement.

On the other hand, Ethereum seems to be gaining sustained momentum due to the increasing adoption of its decentralized applications. This optimism around Ethereum’s ability to strengthen its position as a key pillar in the decentralized financial system has further boosted investor confidence in its future performance.

In conclusion, I believe investors should remain vigilant in the coming period, as the expiration of such large options contracts may lead to unexpected volatility. Current market movements present tremendous opportunities but also carry significant risks. Analysing these trends and understanding their impact in the short term will be crucial in determining investment strategies in the cryptocurrency market.

I can say that the market is on the brink of a new phase, one that could be more flexible and innovative. Investors with a clear vision and well-thought-out strategy will most likely benefit from these shifts. Cryptocurrencies remain a field full of opportunities and challenges, where momentary changes can create waves of opportunities or risks, making it a space worth continuous monitoring.

 

Zaid Barem / YMM