The cryptocurrency landscape is bracing for a significant event as approximately $7.8 billion worth of bitcoin (BTC) options is set to expire at the end of this month. With BTC trading well above the so-called max pain point, analysts suggest that market makers may attempt to push the price lower in the coming days to maximize profit tactics.
Data provided by Deribit, the leading decentralized options exchange, indicates that up to $6 billion in notional value is expected to expire out of the money (OTM) on January 31 at 08:00 UTC. Notably, half of these contracts consist of put options, which grant holders the right—but not the obligation—to sell BTC at a specified price within a defined time frame.
According to Deribit CEO Luuk Strijers, “The max pain level for this expiry stands at $98k, with significant market dynamics expected to influence price movements in the near term.” He further emphasized that the recent rescission of SAB 121 has enabled banks to custody bitcoin, potentially unlocking new institutional flows, while speculation surrounding a forthcoming bitcoin strategic reserve announcement adds even more anticipation to the market.
Those holding put options may be doing so primarily to hedge against downside risk or making bearish bets amidst the uncertainty surrounding the recent inauguration of President Donald Trump.
The concept of max pain is pivotal for understanding this situation. Essentially, the max pain price is the point at which option buyers incur the most significant losses, while market makers, the counterparties in these transactions, realize their highest gains. As the expiry date draws closer, prices tend to gravitate towards this max pain level—making the $98,000 mark particularly crucial to monitor in the upcoming week.
Furthermore, next week’s BTC options expiry is noteworthy as it involves approximately 74,000 contracts set to expire. The total notional open interest for BTC options has reached $28 billion, with $7.8 billion due to expire soon and about 22.6% currently in-the-money (ITM). This scenario has the potential to trigger delta hedging flows within the market. Strijers notes that the Deribit Volatility Index (DVOL) is currently around 60, aligning with year-end levels indicative of ongoing market interest.
The DVOL index serves as a barometer for bitcoin’s implied volatility (IV), which CoinDesk research highlighted reached its highest level on January 20 since August, attributed to bitcoin’s recent surge to all-time highs.
As we move closer to the end of the month, stakeholders in the cryptocurrency space should remain vigilant regarding these developments as the expiry of such a significant amount of options could have far-reaching effects on the market.
