A big Bitcoin (BTC) volatility spike could happen by the end of the month as two major factors come into play. The BTC options market nears a significant $750 million expiration and the CME futures market’s open interest has also soared.
When an options expiry nears, holders of options contracts must adjust their contracts before or right after the expiration. Often times, that could result in volatility in the price of Bitcoin.
Monthly close, options expiry, and CME expiration all coincide
It is not possible to gauge the volatility coming from Bitcoin options until one to two days before the expiration. But, the upcoming expiration, which would take place on the last Friday of the month, coincides with other important dates.
According to the CME Bitcoin futures calendar, the October futures contract will expire on Oct. 30. All CME monthly Bitcoin futures contracts expire on the last Friday of each month.
The upcoming expiry of CME Bitcoin futures contracts is particularly important due to its high open interest.
As it was reported last week, the CME became the second-biggest Bitcoin futures market by open interest, surpassing Binance Futures and other important exchanges.
Since CME tailors to accredited individuals and institutions, the CME Bitcoin futures market surpassing major cryptocurrency exchanges carries different significance. Most notably, it shows that the demand for Bitcoin adoption from institutions has never been this high before.
The term open interest means the total amount of long and short contracts open in the market. Therefore, if open interest is high nearing expiration, it could trigger large volatility.
Atop the highly-anticipated options and futures expiration, Bitcoin looks ahead at an important monthly close too.
On Oct. 26, upon its weekly candle close, Bitcoin officially marked its first completed weekly candle above $13k since 2018.
If Bitcoin remains above $13,000 into November, it would confirm its first monthly candle close above $13,000 in nearly three years.
According to Skew, the “organic” nature of the ongoing Bitcoin rally might raise the chances for a prolonged uptrend. Bitcoin options are pricing in a 7% chance of BTC hitting $20K in the coming months.
Can Bitcoin sustain its momentum?
Whether the expected increase in volatility would help BTC or lead to a sharp rejection depends on its momentum.
If the price of Bitcoin can remain above $13,000 until the monthly close, it would increase the chances of a rally continuation over a pullback.
Technical analysts, like the psuedonymous trader Bitcoin Jack, believe that the current technical structure of Bitcoin is bullish. The trader said:
“BTC 200-day average (green) trending above all-time average (orange) around the time of halving has never failed to induce a supply void driven rally. This is fundamentally programmed into Bitcoin and as long as demand is present, won’t break Last I checked, demand is present.”
The ongoing increase in the price of Bitcoin, despite on-chain data hinting at a miner sell-off, also indicates new demand is flowing into the market.
The selling pressure from existing players, miners and investors is being offset by new capital that is entering the crypto market.
After the last options expiry on Sep. 25, the price of BTC surged from $10,686 to $11,720 in the following 16 days.