As the year draws to a close, Bitcoin (BTC) is nearing a crucial juncture that may trigger increased market volatility. This Friday, December 26, over $23 billion in Bitcoin options are scheduled to expire, signifying the most substantial options expiration in the history of cryptocurrency.
How the $23 Billion Roll-Off Might Influence Bitcoin Prices
Market analyst NoLimit took to social media platform X (formerly Twitter) to explain the significance of this occurrence. Comprehending options expiration is vital to understanding its potential ramifications on the market.
In the expert’s explanation, options represent leveraged bets on Bitcoin’s future price: call options predict a price increase, while put options forecast a decline. Upon expiration, these options either become worthless or prompt hedging actions that require buying or selling in the spot market.
With a staggering $23.6 billion in Bitcoin options expiring simultaneously, a considerable amount of risk is being removed from dealer books in just one day. This unwinding of positions is a significant contributor to volatility.
For context, previous year-end expirations have been considerably smaller: approximately $6 billion in 2021, $2.4 billion in 2022, $11 billion in 2023, and $19.8 billion in 2024.
The sheer magnitude of this upcoming expiry underscores a shift in the market landscape, highlighting the dominance of institutional investors over retail traders.
The specifics of this Friday are particularly significant. Dealers have strategically hedged their positions around essential Bitcoin price levels, and as the options expiration nears, these hedges will be unwound.
This process may result in sharp price fluctuations in either direction, especially given the current low-liquidity conditions in the market. The holiday season has led to reduced trading volume, meaning individual orders could significantly impact prices—potentially causing abrupt price swings.
Key Price Ranges
Compounding the complexity, fellow market analyst MartyParty emphasized that substantial gamma exposure is concentrated in critical price ranges, especially between $86,000 and $110,000.
Estimates indicate that high gamma—approximately $238 million or more in notional sensitivity—will expire, enhancing volatility through delta-hedging flows as Friday approaches. The maximum pain threshold, where sellers of Bitcoin options experience the largest losses, is set at $96,000.
Moreover, analysts from CryptoQuant chimed in, noting that while downside positioning has lightened with the open interest in $85,000 puts declining, there is still a significant presence of $100,000 Bitcoin calls.
This points to a cautious yet persistent optimism for a potential “Santa rally,” according to the analysts. The risk reversals also suggest a decrease in bearish sentiment as Bitcoin’s spot price stabilizes.
At the time of writing, Bitcoin was trading at $87,292, having experienced a loss of 2.5% in the last 24 hours and a 30% gap from its record high.
Featured image from DALL-E, chart from TradingView.com
