Bitcoin rose above $65,000 for the first time in four weeks before the expiration of options contracts on Friday that some analysts say may result in heightened volatility in the cryptocurrency market.
Dipping back below that price level would prompt a sharp decline, while a sustained breakthrough could be followed by a rally, according to Chris Newhouse, director of research at Cumberland Labs.
"We're at $65,000 levels now, and slowly testing higher, either we break out and maintain that as a new level of price discovery, or we don't break higher and see a sharp decline." Newhouse said. "We've shifted toward a more microstructure-dominated trading environment where liquidations, funding rates, and speculation on volatility are predominantly drivers of price."
Bitcoin rose as much as 3.7% to $65,826 on Thursday, before paring the gain. That was the highest since July. 30. Smaller, less liquid tokens rallied more, with Dogecoin up more than 9%, Solana jumping 5% and Avalanche increasing 6.5%.
The $65,000 level has historically been a point of resistance for Bitcoin in August and September, Newhouse said. "We're retesting it."
In the options market, traders will face over $5.8 billion in contracts expiring on Friday.
"Of the BTC options expiring, about 20% is in the money," said Luuk Strijers, chief executive officer of crypto derivatives exchange Deribit. "This larger expiry is likely to heighten market volatility or activity as traders close or roll over their positions, which could also impact price."
The open interest for Bitcoin options is concentrated around $100,000, $90,000, $70,000 and $65,000 across all expirations, according to data compiled by Deribit.
"The market should chop around ahead of expiries as gamma hedging takes control of the market around the 60 and 65k levels," said Darius Tabai, CEO and co-founder of Vertex.
As investors rush to the options market, dealers providing such contracts either buy or sell en masse in a bid to neutralize their fast-moving exposures "- a dynamic known as "gamma hedging."
