First Mover Americas: Bitcoin’s Price Bounce Stalls; Options ‘Max Pain’ in Focus

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Bitcoin took a breather early Tuesday, marking a weak follow-through to Monday’s impressive recovery from the six-week low of $38,210 to $40,600.

The momentum stalled even as U.S.-based financial services firm Fidelity Investments said it would allow investors to put bitcoin (BTC) in their 401(k) retirement savings accounts later this year. Observers cheered the news, saying the passive bid from 401(k)s would be massive and accelerate mainstream adoption. More than 20,000 companies reportedly use Fidelity to administer retirement accounts.

“Fidelity are the first major retirement-plan provider to do this, and I think it sends a significant message to pension providers – nobody wants to be first, but nobody wants to be last,” Marcus Sotiriou, analyst at the U.K.-based digital asset broker GlobalBlock, said in an email.

In another development, the Bitcoin Mining Council’s quarterly report published Monday said mining efficiency rose by 63% year-on-year in the first three months, with sustainable energy usage at 58%. The network used 25% less energy even as the hash rate or the computing power dedicated to the blockchain rose. “These improvements are appealing for institutions who see the environmental impact as one of the biggest reasons not to invest in bitcoin,” Sotiriou said.

Perhaps renewed weakness in stock markets and caution ahead of next week’s Federal Reserve meeting kept buyers at bay. Futures tied to the S&P 500 pointed to a negative open with a 0.4% drop, and European stocks struggled to stabilize after Monday’s slide.

“The recovery attempt of risk appetites, reflected in the recovery and strong close in U.S. stocks yesterday, was dealt a blow by Russia’s Foreign Minister’s warning of a serious danger of nuclear conflict,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said in an email.

Griffin Ardern, a volatility trader from crypto asset management firm Blofin, said, “It’s going to be difficult for the crypto market to make new highs. The Fed’s May meeting is imminent, and bearish sentiment still dominates the market.”

Markets expect the Fed to lift the benchmark interest rate by 50 basis points (0.5 percentage point) to a range between 0.75% and 1% at next week’s meeting. The central bank kicked off the tightening cycle last month with a 25 basis point rate hike.

Ardern added that bitcoin and ether prices might be biased toward max pain levels ahead of Friday’s monthly options expiry. According to data tracked by Skew, bitcoin options worth $2.2 billion and ether options worth $1.2 billion are set to expire this Friday. The max pain for bitcoin and ether is $41,000 and $3,000, respectively.

The max pain is the price level at which option buyers would suffer the most loss on expiry. The theory is that the max pain acts as a magnet while heading into the expiry as option sellers, typically large institutions, buy or sell the underlying asset to keep the price around key levels to inflict maximum loss on buyers. The phenomenon is quite popular in the currency markets.

While skeptics may say the crypto options market is still relatively small to impact the spot price, bitcoin has in the past gravitated toward the max pain point ahead of monthly and quarterly expiries.

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By Omkar Godbole

Dogecoin, the meme-focused cryptocurrency, is looking to break out from a large descending contracting triangular pattern. A breakout, if confirmed, may bring a sharp rally.

Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Nelson Wang.