Ethereum, Solana, Avalanche, DeFi Tokens Fall

The crypto market 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 monthly options expiry as source of renewed volatility.

Ether, the native token of the leading smart contract blockchain Ethereum, traded at $1,830 during the European hours, representing a 6% loss on a 24-hour basis, Forbes data shows. Other coins associated with programmable blockchains like AVAX, ATOM and SOL were 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 support of $28,800 and outperformed other coins by a big margin. The cryptocurrency traded 1.5% lower near $29,000. Major dollar-pegged stablecoins like USDC, BUSD and DAI held on to their 1:1 dollar peg, while tether traded at a slight discount at $0.995.

Bitcoin’s relative outperformance likely stemmed from flight to safety – investors seeking refuge in the most liquid and largest cryptocurrency. Forbes Crypto forewarned readers of an impending rotation of money into bitcoin early this week 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 stay resilient. The S&P 500 futures rose 0.20% during European hours, signaling an extension of Wednesday’s nearly 1% rally. Bitcoin is widely considered a macro asset and is more correlated to traditional markets than altcoins.

The renewed risk-off came a day after minutes from the Federal Reserve’s May meeting showed officials in support of further increases in borrowing costs in June and July and outright sales of mortgage-backed securities. The central bank has raised 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 to Ethereum, experienced a seven-block reorganization, or reorg on Wednesday, raising concerns about Ethereum’s impending upgrade, which is supposedly bullish for its native token. A reorg happens when a block is removed from the blockchain because a longer chain has been created. It can occur due to a malicious attack or a bug or unintentional duplication of the block.

Griffin Ardern, a volatility trader from crypto asset management firm Blofin, said large orders may have also drove ether lower early today.

“There appear to be some block traders selling ETH in the spot market right now to spark volatility. Any large-scale selling operation may cause market volatility in the current low liquidity situation,” Blofin told Forbes in a Telegram chat.

A block trade is a high-volume transaction privately negotiated between two parties and executed over the counter, usually by institutions or sophisticated traders.

Ardern added that the sell orders were likely aimed at injecting volatility into the market ahead of Friday’s monthly options expiry so that traders who went long volatility (bought options to profit from big moves) early this month.

Volatility often has a positive impact on option prices. Traders typically both call and put options when anticipating a volatility explosion or big moves on either side. A call option gives the purchaser 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 mind, the current sell-off is not to short prices but to trigger market shocks and increase volatility. If I remember correctly, quite a few block traders have many long volatility positions expiring around May 27,” Ardnern said.

Data tracked by Swiss-based Laevitas shows Deribit, the world’s largest crypto options exchange by volume and open positions, will settle ether options worth $1 billion and bitcoin options worth $1.7 billion on Friday. Monthly and quarterly option expiries have gained prominence since early 2021, with both cryptocurrencies witnessing increased price turbulence in the lead-up to the settlement.