Bitcoin price drops below $28K as options expire, traders borrow WBTC from Aave
Bitcoin (BTC) traded under pressure on Friday as options worth billions of dollars expired and some traders took bearish bets on the cryptocurrency’s Ethereum-based wrapped version, WBTC.
The leading cryptocurrency by market capitalization fell 1% to $27,546 during European hours after failing to hold gains above $29,000 on Thursday, CoinDesk data shows. At 08:00 UTC, Deribit, the world’s largest crypto options exchange by trading volume and open interest, settled over $4 billion worth of bitcoin options.
“The current price drop is more likely to be the effect of delivery and settlement and market makers selling spot and contracts to maintain a delta neutral [market-neutral] book,” Griffin Ardern, a volatility trader at crypto asset management firm Blofin, told CoinDesk.
Market makers provide liquidity by creating buy and sell orders, making money through the bid-ask spread while maintaining a directional neutral exposure. They are always on the opposite side of investors and often trade the underlying cryptocurrency in the spot market or buy or sell perpetual futures to balance their bullish/bearish exposure in the options market.
Circumstantial evidence validates Ardern’s argument: Bitcoin fell to $27,546 from $28,100 in the hour before 08:00 UTC. Deribit settled quarterly contracts at 08:00 UTC.
The chart tweeted by pseudonymous analyst @52kskew shows that the cumulative volume delta (CVD) in the Deribit-based perpetual futures market fell sharply into the negative before settlement time. A positive and rising CVD means more buyers are in action, while a negative CVD means sellers are aggressive.
The selling of borrowed WBTC, or shorting, may have played a supporting role in driving prices lower. WBTC is the largest wrapped version of bitcoin on Ethereum, the largest smart contract blockchain, and can be exchanged on a 1:1 basis for BTC.
The number of WBTC borrowed from the dominant decentralized lending protocol Aave rose to 3,220 BTC, a 29% increase in two weeks, according to data tracked by Swiss blockchain analytics firm Santiment.
Traders often express their bearish view of bitcoin by shorting WBTC tokens borrowed from DeFi platforms such as Aave.
“So far we’re seeing cautious borrowing of WBTC in this price range, nothing too crazy yet, but it looks like people have started to short,” Santiment said in a market update.
The recent spikes in total WBTC borrowed from Aave have marked price bottoms in bitcoin.
“Looks like the shorts on AAVE have a good track record of getting blown out. So far the highest peaks in total borrowed WBTC have seen them mark the local bottom,” Santiment noted.
