The cryptocurrency market is bracing for a potentially volatile day as $1.86 billion in Bitcoin (BTC) and Ethereum (ETH) options are set to expire. This comes on the heels of the release of the US Consumer Price Index (CPI) data, which showed a lower-than-expected reading. The CPI data has sparked a sharp reaction in the markets, with Bitcoin and Ethereum prices experiencing significant swings.

Bitcoin Options Expiration: What to Expect

According to Deribit, nearly $1.4 billion in Bitcoin options are set to expire, with a maximum pain level of $59,500. This batch of options contains 24,383 contracts, down from the previous week’s 31,615. The put-to-call ratio is 0.83, indicating a slightly bearish market sentiment.

The maximum pain level is a critical level in crypto options, representing the price point at which option holders face the most financial discomfort. The put-to-call ratio, on the other hand, signifies the relative incidence of call options (calls) over put options (puts). A lower ratio indicates optimism, while a higher ratio signals bearishness.

Ethereum Options Expiration: A Cautious Market Outlook

For Ethereum, $471.79 million in options are expiring, covering 183,821 contracts — a decrease from last week’s 206,626 contracts. The maximum pain level is $2,650, with a put-to-call ratio of 0.80, suggesting a cautious market outlook.

Analysts Weigh In: Market Sentiment and Volatility

Analysts from Greeks.live have commented on the market conditions leading up to this day’s expiration. They noted that the US July CPI data was slightly lower than expected, hitting a new low since March 2021. This has led to speculation that the Federal Reserve may cut interest rates in September, with expectations centered around a 25-basis-point reduction.

They also noted that after the ETF was passed, Ethereum’s price showed weakness, leading to a decline with only a modest rebound. Short-term implied volatility (IV) also decreased, with a skew favoring put options.

“Such declines in implied volatility are quite rare in the options market, and the predominantly institutional sellers have been able to cover quite a bit of their earnings on this round of declines to make up for the hedging losses from the substantial volatility over the last month. Now that the term structure is back to a more normal structure of higher and closer, the market will likely be deposited for a while now, and the profit-to-loss ratio for selling medium-term options looks better now,” Greeks.live analysts stated.

Market Impact: Volatility and Uncertainty

As of now, Bitcoin has dropped to $57,255, down from nearly $60,000 before the CPI data release. In the same vein, Ethereum fell from $2,751 to $2,534. It is currently trading at $2,562.

Historically, the expiration of options contracts often results in exciting yet short-term price actions, causing the crypto market to experience uncertainty and volatility as traders prepare for these fluctuations. However, the market typically stabilizes quickly after these expirations.

Conclusion

The expiration of $1.86 billion in Bitcoin and Ethereum options is likely to bring about a volatile day in the cryptocurrency market. With the CPI data release sparking a sharp reaction in the markets, traders are bracing for potential price swings. While the market may experience uncertainty and volatility in the short term, it is likely to stabilize quickly after the options expiration.