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Traders Expect Choppiness to Continue with Possible Rotation to Altcoins
As the festive week approaches, traders are expecting bitcoin (BTC) choppiness to continue, with a possible rotation to altcoins. A massive options expiry weighing on market dynamics is likely to impact the market.
A Major Options Expiry Looms Large
“All eyes are on the massive expiry this Friday, where almost $20 billion notional across BTC and ETH options will expire,” Singapore-based QCP Capital said in a broadcast message early Tuesday. “This represents almost half the total open interest on Deribit. We believe it’s quite possible, especially if spot continues to range here and as option sellers continue to roll their shorts out.”
What Does it Mean?
“Rolling” means that instead of letting their options expire, traders shift their positions to later expiration dates. This is often done to keep the trade active if they still believe in their market forecast.
High Volatility Benefits Option Buyers
High volatility can be good for option buyers because it increases the chance that the option will be “in-the-money” (profitable) at some point before expiry – creating profit for buyers.
Altcoins Might Get a Boost
“As BTC continues to struggle below $100,000, we could also see alts start to play catch up again,” QCP said, adding that a similar trend was observed a month ago when bitcoin was trading at current price levels. The ether/bitcoin ratio bounced off a 0.032 support at the time, as reported, spurring movement in altcoins.
The Crypto Market’s Cyclical Nature
The crypto market often goes through cycles in which bitcoin leads the charge, followed by altcoins. Investors sitting on fresh market gains seek additional returns, and a flow of capital to altcoins leads to wild rallies in short periods.
A Cautious Mood Takes Hold
Bitcoin is currently going through one of its worst December months so far, dampening a seasonally bullish period with a 2% drop over the past 30 days. Hopes of a “Santa rally” – where the asset tends to surge in the festive week – have been dented amid profit-taking and a cautious mood after weeks of price bumps.
What’s Next?
Some are warning of further declines as the U.S. Federal Reserve signaled fewer rate cuts for next year while stressing that it prohibits state holdings of BTC and doesn’t seek a change in the law to do so.
A Potential Opportunity Lurks
However, a drop to the $90,000 level could spell renewed opportunity for market traders, FxPro’s Alex Kuptsikevich told CoinDesk in an email.
“In a potential shock scenario, bitcoin could suddenly dip into the $70,000 area. However, there are more chances that a pullback to $90,000 in the next couple of weeks will be attractive enough for buyers to stop the sell-off,” Kuptsikevich said. “Markets continue to digest the Fed’s tougher tone, reinforced by the accumulated urge to lock in profits after a strong year.”
Conclusion
In conclusion, the upcoming options expiry and potential rotation to altcoins may lead to a period of choppiness in the market. However, there are opportunities for market traders to profit from the situation. It is essential to stay cautious and wait for the dust to settle before making any investment decisions.
FAQs
Q: What is the significance of the options expiry?
A: The options expiry represents a significant event that may impact market dynamics, with almost $20 billion notional across BTC and ETH options set to expire.
Q: What is “rolling” in the context of options trading?
A: “Rolling” refers to the practice of shifting options positions to later expiration dates instead of letting them expire, often to keep the trade active if the trader still believes in their market forecast.
Q: How may the market react to the options expiry?
A: The market may experience increased volatility, with option buyers potentially benefiting from the increased chance of their options being “in-the-money” before expiry. The market may also see a rotation to altcoins as investors seek additional returns.
Q: What is the current mood in the market?
A: The market is currently cautious, with a 2% drop over the past 30 days and a lack of momentum to sustain a “Santa rally”. However, some analysts believe that a drop to $90,000 could spell renewed opportunity for market traders.
