Investors Brace for May Crypto Price Volatility After $4.2 Billion Earthquake Sends Bitcoin Higher
Bitcoin has surged after the expiration of $4.2 billion in bitcoin options contracts, which allow investors to buy or sell bitcoin at a specified price within a set time period, sent shockwaves through the crypto market.
The bitcoin price, which is still on track to end April lower, jumped around 5% after the options expiry, climbing to just over $57,000 per bitcoin before falling back though "joke" cryptocurrency dogecoin has left bitcoin in the dust this week.
With the bitcoin price breakout assisting the crypto market to a strong end-of-month performance, traders and investors are looking forwards to what May may bring.
Bitcoin has struggled this week after Tesla, led by bitcoin bull and dogecoin supporter Elon Musk, revealed that it sold 10% of its bitcoin holdings in March—but Musk helped to calm panicked markets.
Following the much-anticipated market debut of cryptocurrency exchange Coinbase, the bitcoin price cooled, falling from an all-time high of nearly $65,000 set on April 14.
Many bitcoin investors had hoped that April would bring a flood of new all-time highs, but bitcoin is expected to end the month down around 3%.
"Needless to say, bitcoin did not move as many derivative traders expected this month," said Nate Cox, chief investment officer of digital assets investment firm Two Prime, in an email.
However, anticipation for the month of May is already building, with some bitcoin and cryptocurrency market observers pointing to bitcoin's previous performances in the aftermath of other major option expiries as evidence that the late April rebound will continue into May.
"Historically, we have seen prices drop in the days leading up to bitcoin options expiry, only to rebound afterwards, confirming the continued bullishness around bitcoin," said Steve Ehrlich, CEO of Voyager Digital, in an emailed statement.
"As an example, consider the bitcoin options expiry in February: we saw the price close around $57,540 on the Monday of the expiry week and watch it steadily fall to around $46,340 by Friday, February 26, 2021, the day of the expiry. Following that, the price began to rise again, eventually breaking the $60,000 mark less than a month later on March 13. So, while there is a price drop in the days leading up to expiry, the bullishness surrounding bitcoin drives the price back up."
Looking ahead, June and its quarterly futures contract expiration could be the next major milestone for options traders.
"It's interesting to see that the next highest open interest is on the June expiry, with 54,200 open interest, rather than May, with only 35,700 open interest," said Justin Chuh, senior trader at digital asset manager Wave Financial, via email.
"Market participants may seek to align with the June quarterly futures contract and use it as a price discovery tool for spot. Also, there appears to be a more even put:call ratio in June; normally, we see more interest in calls (bets that the bitcoin price will rise), and buying puts (bets that the price will fall) is expensive, but this could be an early indication that more investors are concerned about downside protection as time passes."
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