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TIL: Max Pain Theory (Endure the volatility till Friday, Mar 26, Fellow Hodlers!)

There is a huge amount (billions of USD) of options (both BTC and ETH) expiring on March 26, 2021.

There may be some volatility of both ETH and BTC close to March 26, as institutions try to “push the price toward the max pain point”. For BTC, the max pain point is calculated to be around $44,000. Corresponding ETH max pain point could be around $1320.

Max pain theory [does have some numerical evidence backing it](https://medium.com/coinoptionstrack/max-pain-theory-predicting-the-bitcoin-price-at-options-expiration-ca05130bedff), though it is not 100% accurate (which most theories aren’t). In particular, it is not guaranteed that the max pain point (of BTC $44,000) is actually reached, though it may move in that direction.

The bullish note is that, if ETH and BTC survives the volatility after Friday, Mar 26, the selling pressure would be greatly reduced (there is no more incentive to manipulate prices for options).

Hold your ground, hodl your Crypto. Sons of Gondor, of Rohan!

Source: [https://finance.yahoo.com/news/bitcoin-traders-brace-record-6b-161334983.html](https://finance.yahoo.com/news/bitcointraders-brace-record-6b-161334983.html)

Highlights:

* The max pain theory states that the market will gravitate toward the pain point while heading into the expiry.
* That’s because sellers – typically institutions or sophisticated traders with ample capital supply – often try to push the price toward the max pain point by buying or selling the asset on spot or futures markets. 
* **The bullish spin is that if bitcoin makes it through Friday without a major correction, a major overhang will be lifted.**



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23 Comments

  1. Hmm, if that is the case, then the dates concerning to the Bitcoin Future dates would be somewhat significant to us. I found this [link](https://www.barchart.com/futures/futures-expirations/currencies) that spells out the other dates we should pay attention to then.

    In case the link doesn’t work, [here’s a pic](https://i.imgur.com/ov1NPz9.png).

    Mar: 03/26/2021
    Apr: 04/30/2021
    May: 05/28/2021
    June: 06/25/2021
    July: 07/30/2021
    Aug: 08/01/2021
    Sep-Nov: N/A
    Dec: 31/12/2021

  2. So if I am correct, the market will be pushed to an ‘artificial’ low level, lower than the actual price supply and demand would set naturally? It almost seems common sense to buy on friday.

  3. I agree that this is probably why we are so bearish for now, but why does it seem like institutions always push the price down at the end of the month for options? Why do they never push it up?

  4. Be careful of making too many assumptions of the market based on options or past behavior.

    There are plenty of times where nothing at all happens, or enough people believing the price will end up going in a certain direction ends up causing it to go in the exact opposite direction (because they already bought in or sold or whatever else.)

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