Today is an unusual, or at least strange, day for traditional financial markets and for the prices of Bitcoin and Ethereum.
It is one of the days with the biggest and most important technical expirations, in terms of options value, as well as the fourth annual quadruple witching.
Quadruple Witching Day occurs on the third Friday of the month, every three months for four times in a year. On this day, futures on stock indices and individual stocks and options on stock indices and stocks expire simultaneously. While options on stocks and stock indexes expire monthly, that of futures repeats every three months.
The December expiration is particularly traded because being the annual closing one, funds and investment companies close their annual financial statements to present to their investors.
The surge of volume concentrated in a few hours, beginning at the opening bell of trading, ends at the stroke of 4:00 PM in NYC – 10:00 PM in CET, reminiscent of the folkloric “witching hour” that strikes at the twelfth chime of midnight. The stock market session is often marked by increased volatility. Other times, however, the day passes almost unnoticed.
The peculiarity of this deadline, renamed with a play on words from “friday” to “freaky friday,” in recent years also involves the crypto market. Since 2017 with the launch of futures contracts, first on the price of Bitcoin and then on Ethereum, and since 2021 also with that of options, it has also been possible for traders to use derivative contracts on the two main cryptocurrencies.
So far these technical expirations have not particularly affected the course of the cryptocurrency trading day, but the data on the day with the two technical expirations is always a thermometer for assessing the positioning of professional traders.
Today’s technical expiration becomes useful in understanding the intentions of the remaining invested traders in this troubled phase. Whether they will decide on contract repositioning by moving to the next monthly expiration in January, or to the next quarterly in March 2023, or have decided to carry the positions held to ‘natural maturity’.
The tough bearish phase in November also impacted the positions of derivatives traders, mostly those defined as professional. The open interest of Bitcoin futures contracts collapsed from the absolute highs recorded at the end of October with over 9 billion calculated in US dollars, halving to the current 4.5 billion in USD. This is the lowest level of Open Interest in six months.
Open Interest is used to calculate futures and options contracts, bought or sold short, that remain open beyond the daily session. Technically, the analysis of the descent of the OI together with that of the price, as was the case in November, indicates the closing of positions. And, as a result, the dynamics of what happened in November shows the prevalence of closing positions at a loss.
A trend that in recent weeks, between the November lows and the current phase, seems to indicate a reversal.
Since the November lows, price has reacted with a double-digit rise for both Bitcoin and Ethereum, accompanied by an increase in Open Interest from $4.5B to $5.2 billion. An increase that indicates a tentative return of confidence among traders.
Return of confidence that over the course of the week recorded new period tops with prices managing to recover the highs of early November.
Today, Friday, highlights the nervousness that began Wednesday evening minutes after the announcement of yet another Fed interest rate hike and continued with yesterday’s European ECB decisions. Decisions that are negatively impacting both equity markets, with the major stock indices yesterday closing their worst day since September for the US and since March for Europe, and by reflection also cryptocurrencies.
In fact, the declines of the last few hours erased all the gains accumulated in the first part of the week, changing the technical scenario.
Bitcoin (BTC) price
The week is divided into two phases. The first up sharply saw the price of Bitcoin (BTC) rise for the first time in over a month above $18,300, the second down more than 7% from Wednesday’s tops undoing all the previous gain.
Unlike the previous weekly cycles that are accompanying the current bullish phase that began from the November lows, the current weekly cycle that began with Monday night’s lows shows a controversial trend to follow until the expected close in the weekend hours.
Any descent below $16,800 would announce the beginning of a reversal of the monthly trend that would be completed with a plunge below $16,500.
It becomes necessary to recover $18,000 as soon as possible in order not to risk closing yet another quarter in the red.
Ethereum (ETH) price
The recent rise that between Wednesday evening pushed the price of ETH above $1,350, the highest level since 8 November, seems to have been more a consequence suffered by the trend of BTC than a force of its own.
With the decline in the last few hours, the price of ETH has returned below the support of $1,220, levels from late November, demonstrating more weakness against BTC, which it has so far managed to defend.
In the coming days of the weekend, it is necessary for Ethereum to stay above $1,200 and still not extend the decline below 1,600 USD.
With the downward movement that is characterizing this first part of the day, a test of the technical support of $1,220-1,210 at the 50% Fibonacci retracement calculated from the November lows and highs of the last few days is underway.
A day closing below these levels opens up room for downside. A recovery of $1,280 in the coming days is necessary in order not to risk the raising of the white flag for the young bull.