Investors in Bitcoin and cryptocurrencies await vigilantly this Friday, April 30, 2021. Indeed, this date signals the expiration of approximately 77,000 option contracts, with a total value of $4.2 billion. What could be the impact on the price of BTC?
What are Bitcoin options contracts?
This is one of the many ways to invest your money in Bitcoin (BTC). Optional contracts allow traders to bet on how much BTC will be worth the next time the contracts expire .
While this practice is purely speculative, it allows investors to make a “ call ” when they expect the price to increase, or “a put” when they expect a decrease . In the end, it is possible to make good profits, but also to lose big. This practice is therefore reserved for informed investors.
A Max Pain Price (MPP) at $54,000
The expiration of these contracts is a highly anticipated event, as it risks generating volatility in the market. While the price of Bitcoin had fallen below the $47,000 mark last week, we observed a nice upward phase having reached a top of $ 56,400 .
On the eve of options expirations, the value of BTC appears to have stabilized around $54,000 . This level corresponds precisely to the “ Max Pain Price (MPP)”, which is the price around which there would be the most losing contracts , both buyers and sellers.
The MPP can therefore prove to be an interesting index to get an idea of the evolution of the price until the expiration. Then traders will take their profits or wipe their losses and then move on to new contracts, up or down.
The price impacted at the end of the month?
When analyzing the market, it seems rather relevant to take into account the Max Pain Price. This price level visibly risks retaining the value of Bitcoin until the expiration date .
On the chart below, we can see that the price closed just above the Max Pain Price in January and February 2021 , causing maximum losses for traders.
Max Pain Price History on Bitcoin (BTC)
However, it should be noted that in March , the price closed very much above the expected price, investors who bet on the rise were therefore mostly winners, and the most pessimistic were the big losers.
What is interesting to observe is that systematically since the beginning of the year 2021 the price has moved away from the Max Pain Price in the first part of the month in an uptrend, before finally approaching it at the end of the month with a sharp drop in price.
A return to the rise is then observed at the beginning of the following month and the loop continues for the moment. Price corrections are generally observed after the first 15 days . A drop in order to return to seek the MPP?
On the eve of options expiration, the question is whether the price will this time close below the MPP, or if it will continue this trend to stay above. If we follow the pattern that has been put in place, BTC should close above $54,000, start rising again at the beginning of May, to fall again at the end of the month. Will history repeat itself?