Bitcoin bulls were liquidated last week’s drop to $20,800. Now the leading cryptocurrency is waiting for the $1 billion option expiring this week. The option expiration and the $20,800 level are highly interconnected. Accordingly, the failure of the $20,800 level before option expiration is likely to bring more downside to the price.
Bitcoin price waits for options to expire
Bitcoin (BTC) was testing the $20,800 support. Meanwhile, it experienced a 16.5% correction from August 15 to August 19. The drop was surprising, but in reality a $4,050 price difference isn’t all that significant. As we reported as Kriptokoin.com, BTC has 72% volatility on an annual basis. In other words, this decrease does not make much sense in an environment with such high volatility.
Global inflation and the resulting rate hikes continue to support the bears. However, despite the best efforts of the bears, Bitcoin failed to break below the $20,800 support. This move shows that the $1 billion monthly Bitcoin option expiring on Aug. 26 could benefit the bulls. Despite the 16.5% loss in the last 5 days, the options expiration may support the BTC price rise.
Most BTC bullish bets are above $22,000
Bitcoin failed to break the $25,000 resistance on August 15. The steep correction that followed surprised the bulls. Because only 12% of monthly expiry call options were above $22,000. Therefore, Bitcoin bears are better positioned even though they are betting less. A broader view using the 1.25 bid-ask ratio shows more bullish bets.
Because open call options are $560 million. By contrast, put options are $450 million. However, as Bitcoin is currently below $22,000, most bullish bets will likely become worthless. For example, if the price of Bitcoin stays below $22,000 on August 26, that will only equate to $34 million in put options.
It is possible for the bulls to make a profit of 160 million dollars
Below are the four most likely scenarios based on the current price action. The number of options contracts available for buy (bull) and put (bear) on August 26 varies depending on expiry prices. The imbalance in favor of both parties constitutes the theoretical profit:
- $20,000 to $21,000: 1,100 searches and 8,200 placements. The net result is $140 million supporting the bears.
- Between $21,000 and $22,000: 1,600 searches and 6,350 placements. The net result supports the bears by $100 million.
- Between $22,000 and $24,000: 5,000 searches and 4,700 placements. The net result is that there is a balance between the bulls and the bears.
- Between $24,000 and $25,000: 7,700 searches and 1,000 placements. The net result supports the bulls with $160 million.
It is critical for Bitcoin price to hold $20,800
Bitcoin bulls need to push the price above $22,000 on August 26 to stabilize the scales and avoid a potential $140 million loss. However, BTC bulls held $210 million in leveraged long positions that were liquidated on August 18. Therefore, they are less inclined to push the price higher in the short term.
However, the most likely scenario for Bitcoin on August 26 is the $22,000 to $24,000 range, which provides a balanced outcome between bulls and bears. It is possible for Bitcoin to lose the critical $20,800 support. If that happens, the $140 million loss on the monthly expiration would be the least of their problems. In addition, the move will invalidate the previous low of $20,800 on July 26. Thus, it will effectively break a seven-week uptrend.
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