Here’s why holding $20.8K will be critical in this week’s $1B Bitcoin options expiry

Bitcoin (BTC), which was testing the $20,800 support, experienced a 16.5% correction from Aug. 15 to Aug. 19. Although the drop in price is alarming, it is actually quite insignificant when you consider Bitcoin’s annualized volatility of 72%.

The S&P 500’s volatility currently stands at 31%. This is a significant drop, but the index traded down 9.1% from June 8 to June 13. The index of U.S. companies listed on the S&P 500 saw a much more rapid movement adjusted for historical risk.

This week saw crypto investors’ sentiment worsen after the central bank reduced its five-year loan prim rate by a mere 0.5% on Aug. 21 due to weaker real estate market conditions in China. A Goldman Sachs strategist for investment banking stated that rising inflation would cause the U.S. Federal Reserve (which negatively affects the S&P 500) to tighten its economy.

Investors will seek refuge in the U.S. dollar or inflation-protected bonds if they are worried about a market crash or crisis, regardless of the correlation between stocks, Bitcoin and the current 80/100 ratio. This is called a “flight from quality” and adds selling pressure to all risk markets, even cryptocurrencies.

Despite all the efforts of the bears, Bitcoin has yet to breach the $20,800 resistance. This is why the $1 Billion Bitcoin monthly options expire on Aug. 26. Bulls could be benefited by this move, despite the 16.5% loss in five days.

Bullish bets typically exceed $22,000

Bulls were surprised by the steep correction in Bitcoin after it failed to break the $25,000 resistance. Only 12% of the monthly expiry call (buy) options have been placed above $22,000. Bitcoin bears are therefore better placed even though they have placed fewer bets.

Bitcoin options open interest aggregated for August 26. Source: CoinGlass

The 1.25 call-to–put ratio gives a wider view. This is because the open interest for call (buy) stands at $560 million, while the put (sell) options stand at $450 million. However, Bitcoin is currently below $22,000 so most bullish bets are likely to become meaningless.

If Bitcoin’s price is below $22,000 on Aug. 26 at 8:00 UTC, only $34 million worth these put (sell), options will be available. This is because Bitcoin trades at a higher level than $22,000 on expiry, so there’s no way to sell it below that level.

Bulls could make $160 million in profit

Based on current price action, the following are the most likely scenarios. The expiry price will determine the number of options contracts that are available for call (bull) or put (bear), depending on which instrument is being traded. The theoretical profit is the result of an imbalance in favor of each side.

1,100 calls for between $20,000 and $21,000 vs. 8,200 put. The net result favors bears $140 million. Between $21,000 and $22,000, 1,600 calls vs. 6,350 put. The net result favors the bears by $100 millions. Between $22,000 and $24,000, 5,000 calls vs. 4700 puts. The net result favors bulls over bears. Between $24,000 and $25,000, 7,700 calls vs. 1,100 puts. The net result favors bulls $160 million.

This rough estimate includes the bullish options and neutral-to bearish options. This oversimplification ignores complex investment strategies.

It is crucial to hold $20,800, especially after bulls were liquidated on the futures market

To balance the market and avoid a $140 million loss, Bitcoin bulls must push the price to $22,000 by Aug. 26. Bitcoin bulls have $210 million in leverage long futures positions that were liquidated Aug. 18 so they are less likely to push the price higher.

The most likely scenario for Aug. 26th is the $22,000- $24,000 range, which provides a balanced outcome between bears and bulls.

The $140 million monthly expiry loss will not be a problem if bears are strong and BTC loses $20,800 support. The move would also invalidate the $20,800 July 26 low, effectively ending a seven-week-long ascending trend.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

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 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.

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