Please ensure Javascript is enabled for purposes of website accessibility

Why Bitcoin, Ethereum, and Dogecoin Spiked Early This Morning

By Chris MacDonald – Dec 31, 2021 at 11:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Another early-morning spike drives volatility among major crypto tokens.

What happened

Between the hours of 3 a.m. and 4 a.m. ET, Bitcoin (BTC 0.09%)Ethereum (ETH -0.94%), and Dogecoin (DOGE -1.92%) each saw a rather sizable spike. Bitcoin went from around $47,000 per token to $48,300 per token. Ethereum surged from $3,700 per token to $3,800 per token. And Dogecoin rose from $0.171 to $0.175 over this time frame.

Today, these top cryptocurrencies are up 1.4%, 1.9%, and 0.5% as of 10:30 a.m. ET, largely as a result of this early-morning spike. 

It appears that the market sell-off heading into the end-of-year options expiry for Bitcoin and other key tokens is at play with this move. These top tokens have recovered some of their losses from the past week, though each remains more than 5% lower over the past seven days.

Bitcoin logo on top of digital-looking background.

Image source: Getty Images.

So what

Similar to the "witching hour" events seen in the stock market, options and futures expiry in the crypto world provides for periods of volatility throughout the year. Today, being the last day of the year, also marks the expiry date for $6 billion of Bitcoin options. A sell-off into this event, followed by a rise coming out of the options expiry, has historically taken place.

It appears institutional investors eager to front-run this move bought heavily into these top tokens earlier today. Additionally, sources have noted that the "max pain" level for Bitcoin (the level at which most options expire as worthless, and therefore the level most profitable for market makers) is $48,000. As of 10:30 a.m. ET, Bitcoin currently trades right around $48,000 per token.

Now what

The fact that these top cryptocurrencies all followed Bitcoin's move this morning suggests a continued high correlation among top tokens in the crypto world. As Bitcoin gains or loses value to the dollar, these top tokens, which are priced in both dollars and Bitcoin, appear to be following suit. Accordingly, these recent options-driven moves, largely from institutional investors, are starting to get noticed.

Many investors are expecting to see less volatility in early 2022, following this options expiry event. That said, as we've seen in recent years, volatility is the name of the game in the crypto world. Those looking to add exposure to this sector should be prepared for wild swings as the market continues to find the correct price for these risk assets.

Chris MacDonald owns Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.