This week in CryptoAt the end of last week, the largest expiry of Bitcoin options in the history of the BTC exchange traded derivatives market took place. This was not only a milestone in the institutionalization and financialization of the market, but as open interest continues to increase in the options markets, these events provide potentially very tradable events for speculators and risk-takers.With very large open interest, it is possible that price action can get pinned between certain predetermined strike levels as the date of expiry approaches. As time reduces on an options contract, the sensitivity to the rate of change of the underlying price of Bitcoin increases, this is also known as the Gamma of the option. As price moves up and down towards opposing strikes, traders need to dynamically hedge the option with increasing pressure, as a result of the increased Gamma. This process can play out as the option expiry approaches, which in turn creates a reduction in volatility until the contract expires. Once the options expire, the hedging required for option books to remain delta neutral is no longer needed in such great volume, and the large open interest which creates these \u2018\u2019pinned\u2019\u2019 market conditions are gone, allowing price action to revert back to more fundamental drivers.As we noted last week with the entrance into the crypto market of Morgan Stanley and Goldman Sachs, we expect the open interest of the derivatives markets to continue to expand as sophisticated institutional money will, in greater numbers, seek to express market views with derivatives contracts. The greater the open interest in this derivatives market, the greater the potential effect on the underlying price of Bitcoin and the more pronounced these contract expiries may be until the trade is crowded out. It feels like little coincidence that with the\u2026<\/p>","protected":false},"excerpt":{"rendered":"
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