Bitcoin (BTC), which briefly touched $25,000 on Aug. 15th, was a bit excited but it lasted only an hour. The excitement was quickly followed by a 5% retrace within the next five hours. Bulls may have been given false hope about the $335 million weekly options expiry, but the resistance level proved more difficult than anticipated.
After BTC tested and dumped the $23,300 support, investors’ fleeting optimism turned to sellers’ market. This negative move occurred hours before the Federal Open Markets Committee’s (FOMC) minutes of its July meeting were released. Investors are hoping to get some insight into whether the Federal Reserve will keep raising interest rates.
After a U.S. federal court authorized the U.S. Internal Revenue Service to force SFOX, a cryptocurrency broker, to disclose the identities and transactions of U.S. taxpayers, the negative newsflow accelerated on August 16. This same strategy was used for information gathering from Circle, Coinbase, and Kraken in the period 2018-2021.
This is why betting on Bitcoin prices above $25,000 on Aug. 19, seemed like a sure bet a few days ago. This would have incentivized bullish wagers.
Bears didn’t think BTC would move higher than $24,000, according to Bears
Open interest at the Aug. 19 options expiry will be $335 million. However, bears are overly optimistic so the real number will likely be lower. The traders may have been deceived by the temporary drop to $22,700 Aug. 10, but their Aug. 19 options bets expire at $15,000.
Bitcoin options open interest aggregate for August 19. Source: Coinglass
1.29 Call-to-put ratio is the difference between $188 million open interest (buy) and $147 million put options (sell). Bitcoin is currently at $23,300. This means that most bullish bets will soon become worthless.
These call (buy) options are only available if Bitcoin’s price falls below $23,000 on Aug. 19 at 8:00 AM UTC. This is because a right of purchase Bitcoin at $23,000 on expiry is null.
Bulls have still some hope, but $25,000 seems far away
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.
Between $21,000 to $23,000: 30 calls against 2,770 puts. The put (bears) instruments are favored by $60 million. Between $23,000 and $25,000, 940 calls vs. 1,360 lets. The net result balances bulls and bears. Between $25,000 and $26,000, there are 3,330 calls and 100 puts. The net result favors bullish instruments by $80 millions.
This rough estimate includes the put options in bearish bets as well as the call options in neutral-to bullish trades. This oversimplification ignores complex investment strategies.
A trader might have sold a put option to gain exposure to Bitcoin above a certain price. Unfortunately, it’s not possible to quantify this effect.
Related: A former Goldman Sachs banker explains how Wall Street is wrongly using Bitcoin
Bears will attempt to keep Bitcoin below $23,000
To make $80 million, bitcoin bulls must push the price to $25,000 by Aug. 19. To maximize their gains, bears must maintain a price of less than $23,000.
Bitcoin bulls had just $144 million worth of leveraged futures long positions that were liquidated on August 16. They should therefore have less room to push the price higher. Despite this, the bears are in control of lowering Bitcoin to $23,000 before the Aug. 19 expiry.
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.