About $570 million of weekly Bitcoin options expire Friday. Recent macro and crypto news events have turned the advantage in favor of bearish traders.
Bitcoin bears are rubbing their palms!
As you follow on Kriptokoin.com, Bitcoin closed below $28,000 for the first time in a long time. Analysts cited this week’s Federal Open Market Committee minutes as a possible cause, voicing concerns about inflation and the need to raise interest rates rapidly.
Meanwhile, the $580 million Bitcoin option expires on Friday. Despite the obvious reasons for the decline, these options are in favor of the bears. It is possible that they could potentially make a profit of $140 million on August 18. They are also likely to increase the downward pressure on Bitcoin, making it harder for BTC to seek bottom.
Fed minutes drive investors away from the crypto market
Fed Chairman Jerome Powell emphasized the 2% inflation target on August 16. This pushed the yield on US 10-year Treasury bonds to the highest level since October 2007. This has turned investors away from riskier assets like cryptocurrencies. It also led him to move in favor of cash positions and companies that were prepared for such a scenario.
Notably, Bitcoin fell as low as $29,000 before the Fed minutes were released. Its 10-year yield rose after the minutes. It also pointed to skepticism about the Fed’s ability to control inflation. Despite this, the effect of the minutes was limited. While the exact reasons for the price drop remain unclear, there is a possibility that BTC will reverse its trend following the expiration of weekly options on August 18.
Bitcoin bulls made the wrong bet!
Between August 8 and August 9, the Bitcoin price briefly surpassed the $29,700 level. This led to optimism among traders using options contracts.
Deribit Bitcoin options total open interest for August 18. Source: DeribitThe 0.57 put/call ratio reflects the open interest difference between a $365 million call option and a $205 million put option. However, the bulls were caught by surprise with the recent price dropping below $29,000. Therefore, the result would be less than the total open interest of $570 million.
Three most likely scenarios for BTC options
For example, if the price of Bitcoin trades at $28,400 on August 18, 11, only $3 million worth of call options will be counted. This distinction is due to the fact that the right to buy Bitcoin at $27,000 or $28,000 becomes void if BTC trades below these levels at maturity.
Below are the three most likely scenarios based on the current BTC price action. For call (buy) and put (sell) instruments, the number of options contracts available on August 18 varies depending on the expiry price. The imbalance in favor of both parties constitutes the theoretical profit:
- Between $26,000 and $28,000: 100 call contracts versus 5,300 put contracts. The net result is in favor of put (sell) instruments with $140 million.
- Between $28,000 and $28,500: 3,900 puts against 100 calls. The net result is in favor of put (sell) instruments with $60 million.
- Between $28,500 and $29,500: 1,300 puts against 600 calls. The net result is in favor of put (sell) instruments with $20 million.
Bitcoin bears likely to retain their advantage
Bitcoin bears are likely to hold their ground, given growing concerns among investors about the impending economic slowdown due to the steps central banks are taking to contain inflation. This trend is not limited to the expiry on Friday. Also, the spot ETF, which is the primary short-term target of BTC bulls, has a pretty slim chance of being approved. Therefore, the bearish trend is expected to continue.
As a result, those on the bull side find themselves in a difficult spot. The success of call (buy) options depends on Bitcoin’s expiry price rising above $28,500. The most likely scenario where the bears could walk away with a positive $140 million result suggests the potential for more corrections in Bitcoin price.
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