Nearly a billion dollars in Bitcoin options contracts will expire this Friday, according to data from cryptocurrency analytics firm Skew. Also, $ 450 million worth of Ethereum options contracts will expire. But what does this mean for both crypto coins?
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What is an option contract?
First back to the basics: what are we actually talking about?
With an options contract, investors can buy bitcoin in the future at a pre-agreed price.
Suppose you entered into an options contract when bitcoin was $ 4,000, just after the corona crash. That contract states that you can buy that one bitcoin for that price at the end of September. Since the price of bitcoin has now more than doubled, that would have been a good choice. Or a fantastic bet.
Basically, that’s how bitcoin futures contracts and options contracts work. The uniqueness of an options contract is that you have no obligation to trade on the contract when it expires. Option contracts therefore give you more freedom.
Option contracts are popular
Bitcoin options contracts are popular. Deribit trades USD 57 million in options contracts daily. On all platforms together, 1 billion dollars in contracts that expire tomorrow.
But what impact does this have on the bitcoin price? According to some analysts, this can have a significant impact, but it doesn’t have to. This is because traders are not obliged to trade according to the contract.
What is the influence on bitcoin?
Charles Bovaird is a researcher at crypto research company Quantum Economics. He tells DeCrypt: ‘When these contracts expire, volatility is often expected. The price can fluctuate strongly because investors choose to buy, sell or let their contract expire. ‘
According to Dan Gunsburg, CEO and co-founder of crypto trading platform Hxro, most options contracts are between $ 11,000 and $ 12,000. That is well above the current price of USD 10,300 (EUR 8,851).
That high price of options contracts can drive investors to buy more bitcoin. Bovaird:
If a large number of contract holders use this opportunity to buy bitcoin before the contracts expire, it would put an upward pressure on the price of the cryptocurrency. Likewise, contract holders can use their options to sell bitcoin and push the price down. ”
Or, much shorter: Nobody knows what will happen tomorrow.
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