The crypto market is complicated in itself, but specialized financial products take it a step further. A good example of such products are option contracts. Bitcoin (BTC) and Ethereum (ETH) options traders are in the green en masse, and that could be the case for the next few days Good news for the prices of some cryptos.
Many crypto options traders are short
Theoretically, you can make a lot of profit from options contracts, as these contracts have built-in leverage, which is as much as 100 times the value you invest yourself. But there is a catch: After the expiry date, the contract (of the European type) can no longer be worth anything. That means you know where you stand. You lose your entire investment or make a relatively large profit.
This Friday, crypto derivatives exchange Deribit is expiring a whopping 72,000 BTC and 535,000 ETH worth of options contracts, CoinDesk writes. That is currently worth almost 1.8 billion euros and 823 million euros. Deribit accounts for 90% of the global crypto options volume.
By the time Investors expect prices of many cryptocurrencies to fall. This is reflected in the type and scope of these option contracts. Investors have so-called puts bought, which allows you to make a profit when the price falls. From CallOptions allow you to make a profit if the price goes up. In fact, most traders now are short on the market.
Profitable speculation good for Bitcoin price?
The majority of investors on Deribit therefore expect the price to fall. But history shows that this is often not the case. The companies that offer these contracts make more profit when the contracts expire worthless then they don’t have to pay the merchants. It’s not much more than a theory, but one that supports the data.
Speaking to CoinDesk, Deribit manager Lin Chen explains that most buyers of these put options are the clear winners right now. All outstanding contracts for the month of August expire this Friday. This suggests that the market could be very volatile.
According to information from Deribit, the price levels that would cause “maximum pain” are currently $28,000 for Bitcoin and $1,800 for Ethereum, and in theory, prices are tending to converge towards that price. Should these prices be reached, prices would have to rise by 5.8% and 8.1% respectively. This is not positive for this group of traders, but it is positive for Bitcoin price and Ethereum price.