$3.4 Billion In Bitcoin Options Expires, Triggering Market Squeeze — Details

Bitcoin’s price action has been grossly dramatic throughout the year. After reaching its current all-time-high price of $126,000 in early October, the world’s leading cryptocurrency saw a rapid flip to the downside. Since reaching its October high, Bitcoin spiraled to as low as $80,500, a more than 15% negative deviation in reviewing year on year growth. 

As the market sentiment thus ostensibly leans bearish, an on-chain analysis has recently been published, proffering reasons to believe that the negative sentiment among investors could be growing stronger.

$91,000 Max Pain Point Breached After Friday Options Expiry

In a QuickTake post on CryptoQuant, crypto pundit GugaOnChain brings to light the expiry of about $3.4 billion in Bitcoin options. This expiration event, which took place on Friday, 5th December, is one that typically triggers a “gravitational force” which attracts price to itself. By extension, price tends to move towards a specific price level referred to as the Maximum Pain Point, where option buyers incur the greatest losses, and sellers realize the most profits.

In this scenario, the Maximum Pain Point stood at approximately $91,000. As such, the Bitcoin price saw a rapid decline towards this mark. However, by the end of the session, Bitcoin had already slipped beneath its “gravitational force,” reaching as low as $89,500, and entering a range that amplified its buyers’ losses, while also maximizing its sellers’ (market makers) gains.

Negative Funding Rate Further Strengthens Bearish Narrative

GugaOnChain also references readings from the Bitcoin: Funding Rates metric, which tracks the average funding rate across all major perpetual futures exchanges. As the analyst explains, this metric is useful in reading the prevalent market sentiment. For example, negative Funding Rates, such as the current reading of -0.001206, typically indicate the willingness of short traders to pay the longs for their positions. As such, it is evident that the market sentiment is more bearish than bullish.

There appears to be an alignment between the negative funding rates and the sell pressure supplied by the $3.4 billion expired options and breach of the $91,000 Maximum Pain Point. GugaOnChain explains that such a correlation further strengthens the narrative that the Bitcoin market could see an additional significant drop in its price.

While the long-term market direction may be well-defined, its short-term sentiment, however, reflects a more modest stance of utmost caution.  As of press time, Bitcoin is valued at about $89,250. Over the past 24 hours, the premier cryptocurrency has lost approximately 3.38% of its value, per CoinMarketCap data.

Featured image from Shutterstock, chart from Tradingview