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Scary Bitcoin volatility? $750M in BTC options set to expire for Halloween

10/26/2020

The upcoming expiration of $750 million in Bitcoin options, which would occur on the last Friday of the month, coincides with other important dates.

A big Bitcoin (BTC) volatility spike could occur by the month’s end as two major factors come into play. The BTC options market nears a massive $750 million expiration and the CME futures market’s open interest has also soared.

When an options expiry nears, holders of options contracts have to adjust their contracts before or right after the expiration. Often times, that could cause volatility in the price of Bitcoin.

Options open interest. Source: Skew

Monthly close, options expiry, and CME expiration all coincide

It is difficult to gauge the volatility coming from Bitcoin options until one to two days before the actual expiration. But, the upcoming expiration, which would occur on the last Friday of the month, coincides with other important dates.

According to the CME Bitcoin futures calendar, the October futures contract expires on Oct. 30. All CME monthly Bitcoin futures contracts expire on the last Friday of each month.

The upcoming expiry of CME Bitcoin futures contracts is particularly important because of its high open interest.

As Cointelegraph reported last week, the CME became the second-biggest Bitcoin futures market by open interest, overtaking Binance Futures and other major exchanges.

Since CME tailors to accredited investors and institutions, the CME Bitcoin futures market surpassing major cryptocurrency exchanges carries various significance. Most notably, it indicates that the demand for BTC from institutions has never been this high before.

The term open interest refers to the total amount of long and short contracts open in the market. Hence, if open interest is high nearing expiration, it could trigger large volatility.

Atop the highly-anticipated options and futures expirations, Bitcoin also looks ahead at an important monthly close.

On Oct. 26, upon its weekly candle close, Bitcoin officially marked its first completed weekly candle above $13,000 since January 2018.

If BTC stays above $13,000 into November, it would confirm its first monthly candle close above $13,000 in nearly three years.

The Bitcoin weekly price chart. Source: TradingView.com

Researchers from Skew said, the “organic” nature of the ongoing Bitcoin rally might raise the chances for a prolonged uptrend. As Cointelegraph reported, Bitcoin options are pricing in a 7% chance of BTC hitting $20K in the next two months.

Can BTC sustain its momentum?

Whether the expected increase in volatility would aid BTC or fuel a sharp rejection depends on BTC’s momentum.

If the price of Bitcoin can stay above $13,000 until the monthly close, it would increase the chances of a rally continuation over a pullback.

Technical analysts, including the psuedonymous trader Bitcoin Jack, state that the current technical structure of Bitcoin is bullish. The trader said:

“BTC 200-day average (green) trending above all-time average (orange) around the time of halving has never failed to induce a supply void driven rally. This is fundamentally programmed into Bitcoin and as long as demand is present, won’t break Last I checked, demand is present.”

The continuous increase in the price of Bitcoin, despite on-chain data hinting at a miner sell-off, also shows new demand is flowing into the market.

The selling pressure from existing players, miners and investors is being offset by new capital that is entering the cryptocurrency market.

After the last options expiry on Sep. 25, the price of Bitcoin rose from $10,686 to $11,720 in the following 16 days. At the time, Cointelegraph reported that volatility may result from the September options’ expiration.