Market Wrap: Bitcoin Rangebound Ahead of Option Expiry; Expect Higher Volatility

Bitcoin (BTC) traded in a tight range between $35,000 and $38,000 on Thursday after a few days of sharp price swings.

Traders are starting to position themselves ahead of the bitcoin options expiry on Friday. So far, volume on open interest, or the total number of outstanding option contracts, indicates bearish sentiment, although some analysts expect BTC's price to trade closer to the max pain price of $42,000, or the strike price with the most open options contracts.

"More volatility is expected as $2 billion worth of options are set to expire this Friday. We are seeing mixed sentiments among traders," Lennard Neo, head of research at StackFunds, a Singapore-based crypto investment firm, wrote in a Thursday briefing.

CoinDesk's Omkar Godbole pointed to the recent jump in bitcoin's six-month put-call skew (the cost of bearish puts relative to bullish calls). The jump in skew suggests market participants are seeking protection from downside volatility.

Historically, a positive six-month skew has signaled peak bearish sentiment, similar to what occurred in April 2020 and late May 2021, according to Godbole.

Uncertainty in the options market could lead to more price swings, creating difficulties for some traders who rely on stable price trends.

"It is possible that we could see short-term rallies over the next several weeks, but overall maintain that monetary tightening will continue to present choppy waters for crypto through Q1 and into Q2," Sean Farrell, head of digital asset strategy at FundStrat wrote in a newsletter.

Bitcoin transfer volumes have been dominated by large institutional size flows, according to blockchain data compiled by Glassnode. The chart below shows more than 65% of all BTC transactions have been larger than $1 million in value over the past year.

The uptrend in large bitcoin transaction volumes started around October 2020 when the BTC price was between $10,000 and $11,000, according to Glassnode. Still, the uptrend in transfer volumes has slowed over the past few months as BTC established a higher price range between $28,000 and $69,000.

Some analysts point to large holders and long-term investors as a stable source of BTC demand. But will these deep-pocket investors stick around if crypto prices continue to fall?

“The crypto market is currently going through another test amidst broader macroeconomic uncertainty relating to global interest rate policy and repricing of risk-on assets," Thomas Perfumo, head of business operations and strategy at Kraken Intelligence, wrote in an email to CoinDesk.

"Investor sentiment in crypto markets is greater than when markets briefly turned over eight months ago. Long-term confidence in the prospects of both assets has not disappeared, as some might argue," Perfumo wrote.

Digital assets in the CoinDesk 20 ended the day lower.

There were no gainers in the CoinDesk 20 on Thursday.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.