The combination of bearish and bullish factors this week was sufficient to bring Bitcoin (BTC), price down to its lowest level in 46 days. This nearly erased 86% of the $2 Billion September call (buy) options expiring on Sept.24.
There are still some surprises to be had, especially when you consider that the deadline is at 8:00 UTC on September 24. The incentives for bears are small, however, as the Sept. 21 sub-$40,000 test resulted in less than $250million in futures contract liquidations.
Evergrande Group reassured investors that they would pay interest on an offshore bond on Sept. 22 to ease default fears. Investors still expect that the company will default on the dollar-denominated bonds held mostly by international investors.
Bitcoin price on Coinbase in USD Source: TradingView
Although the recent movements above $48,000 on September 18 and 19 were sufficient to break the 20 day moving average resistance, it was not enough. The peak Chinese debt-contagion fear is over, so bulls are now hoping for a “return of the mean” movement. In an interview with Washington Post, Gary Gensler, the Chair of the U.S. Securities Commission (SEC), on Sept. 22, he stated that no short-term actions were taken.
If historical data is any factor in Bitcoin’s price, September had negative performance in four years. If BTC closes September below $47.110 (its closing price Aug. 31), this bearish trend will continue.
Open interest in bitcoin options for September 24th, aggregated Source: Bybt.com
Bulls will face a test of strength when the September monthly expiry is set. 86% (buy) of the $2million calls (buy) options were placed at $46,000 and higher. Therefore, if BTC trades lower than $46,000 on September 17, the neutral-to bearish put option open interest will be reduced to $285million
A call option allows you to purchase Bitcoin at a fixed price and expires on a specific date. A $50,000 call option is worthless if Bitcoin trades below this price on September 24th at 8:00 UTC.
BTC prices are dominated by bulls, but they are also overconfident
Bulls have a greater advantage if they take a wider view. The total open interest in the call (buy), options instrument is $2 billion. This is 90% more than the neutral-to bearish put options.
This data is misleading, however, as the bulls’ overoptimism will likely wipe out most their bets. These competing forces might be balanced by the $1.05 billion open interest in put (sell), options.
These are the most likely scenarios based on current prices. The potential profit from expiry is represented by the imbalance favoring one side. Below is data that shows the number of contracts available on Friday depending on the expiry price.
Between $38,000 to $40,000: 3,390 calls against 8,695 put. The net result favors the protective put (bear). Between $40,000 and $46,000: There are 11,820 calls and 3,050 puts. The net result favors the call (bull), options. Above $50,000: 16,370 calls, vs. 1,400 put. A $75 million lead would be available for bullish instruments.
This rough estimate assumes that call (buy) options are only used in bullish strategies, and put (sell), options are only used in neutral-to bearish trades. Real life is more complicated than that, as there may be other investment strategies.
Bears can take advantage of incentives to keep BTC under $46,000
Sellers and buyers will work together to maximize their efforts in the hours before Friday’s expiry. The bears will attempt to limit the damage by keeping the price under $46,000. If BTC is above $46,000, however, bulls will have a good handle on the situation.
Is $75million a profit big enough to justify a rally higher than $50,000? These are not exact numbers, but they do represent simplified estimates. It will depend on the position of arbitrage desks and market makers, which can be difficult to predict.
Although there is still volatility ahead of Friday’s event, both sides appear equally balanced despite the $3 billion headline.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.