The crypto market’s risk aversion worsened early Thursday, with ether (ETH) and other alternative cryptocurrencies (altcoins) taking a bigger hit than bitcoin (BTC). One trader pointed to Friday’s options monthly expiration as a source of renewed volatility.
Ether, the native token of leading smart contract blockchain Ethereum, was trading at $1,830 during European business hours, down 6% on a 24-hour basis, Forbes data shows. Other programmable blockchain-related coins like AVAX, ATOM, and SOL are down at least 10%. Top DeFi, privacy and web 3 coins also bled heavily, extending their recent slide.
While bitcoin also faced selling pressure, it held above the critical $28,800 support and far outperformed other coins. The cryptocurrency traded 1.5% lower near $29,000. Major dollar-pegged stablecoins like USDC, BUSD, and DAI stuck to their 1:1 dollar peg, while Tether traded at a slight discount of $0.995.
Bitcoin’s relative outperformance is likely due to flight to safety – investors seeking refuge in the most liquid and largest cryptocurrency. Forbes Crypto earlier this week warned readers of an imminent rotation of money into Bitcoin after the Ether-Bitcoin ratio fell below critical support.
Aside from the flight to safety, signs of stability in traditional markets may have helped Bitcoin remain resilient. S&P 500 futures rose 0.20% during the European hours, signaling an extension of Wednesday’s nearly 1% rally. Bitcoin is widely viewed as a macro asset and is more highly correlated to traditional markets than altcoins.
The renewed risk aversion came a day after minutes from the Federal Reserve’s May meeting showed officials supporting further hikes in borrowing costs in June and July and outright sales of mortgage-backed securities. The central bank has hiked rates by 75 basis points since March, putting pressure on asset prices.
Ethereum’s Beacon Chain, which will introduce a proof-of-stake consensus mechanism for Ethereum, Experienced a seven-block reorganization, or reorg on Wednesday, raising concerns about Ethereum’s upcoming upgrade, that is supposedly bullish for its native token. A reorg occurs when a block is removed from the blockchain because a longer chain was created. It can occur due to malicious attack or bug or unintentional duplication of the block.
Griffin Ardern, a volatility trader at crypto asset management firm Blofin, said large orders may have also pushed ether lower earlier today.
“There seem to be some block traders selling ETH in the spot market right now to trigger volatility. Any large-scale sell operation can lead to market volatility in the current low-liquidity situation,” Blofin told Forbes in a Telegram chat.
A block trade is a large volume transaction privately negotiated between two parties and executed over the counter, usually by institutions or experienced traders.
Ardern added that the sell orders were likely aimed at adding volatility to the market ahead of Friday’s monthly options expiration, so traders who went long volatility (buying options to take advantage of large moves) earlier this month.
Volatility often has a positive effect on option prices. Traders typically enter both call and put options when they anticipate a volatility explosion or large moves on either side. A call option gives the buyer the right, but not the obligation, to buy the underlying asset at a predetermined price on or before a specific date. A call represents a bullish bet while a put represents a bearish bet.
“In my opinion, the current sell-off is not intended to shorten prices, but rather to trigger market shocks and increase volatility. If I remember correctly, some block traders have many long volatility positions that expire around May 27,” Ardnern said.
Data compiled by Switzerland-based Laevitas shows that Deribit, the world’s largest crypto options exchange by volume and open interest, listed $1 billion worth of ether options and $1.7 billion worth of bitcoin options on Friday US Dollar will process. Monthly and quarterly option expirations have gained prominence since early 2021, with both cryptocurrencies seeing increasing price turmoil ahead of settlement.