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$1bn worth of Bitcoin options contracts expiry today

Volatility could return to Bitcoin if the ending of the contracts shakes things up enough

Last night’s dip in Bitcoin’s price may have been the result of a number of factors. However, today’s options expiry could have perhaps played the largest role.

Price dropped below $9,000 last night although it has since recovered to around $9,300 at the time of writing. This would suggest that the dip appears to have been bought up by bullish traders ahead of today’s expiry.

Fears of the Coronavirus second wave may also have had an impact. Many states in the USA are reporting record new case numbers, with many of their pandemic measures having been prematurely relaxed.  Investors are wary of what this may mean for the economy.

Even for wary investors however, it is hard to ignore the sheer amount of money tied up in these contracts. $1.06 billion worth of options contracts expire today, making it the biggest figure for the Bitcoin options market to date. It reflects the massive growth in Bitcoin options in such a short space of time. A few months ago, figures like these would not even have been plausible.

One thing is certain that will follow the expirations of these options: an increase in volatility. Bitcoin’s volatility has stagnated recently, however, the conclusion of these options contracts will leave investors free to strike up new ones, potentially after having seen great returns. The opposite of this could also be true.

It is important to note that the majority of Bitcoin options are cash-settled, rather than physically delivered. This means, instead of receiving Bitcoin at the conclusion of the contract, investors receive cash. The implications of this for the price of Bitcoin could be massive, as investors will have increased liquidity and will be looking to reinvest once again.

This could well help Bitcoin break above and stay above the elusive $10,000 mark. On the other hand it should be noted it could swing the other way. However, the put to call ratio has turned bullish this last week. That means the number of calls and options contract that bets that the price will rise, is greater than the number of puts, an options contract that bets that the price will decrease.

The overall positive sentiments that this reflects is important in helping deduce what the options traders will do with their newly settled cash today. If the majority of them are positively minded about Bitcoin’s price rising, there is a good chance they will reinvest.

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