It has been 51 days since Bitcoin (BTC) last closed above $24,000, leaving even the most bullish to question whether a sustainable recovery is possible. Nevertheless, Despite the lackluster price action, the bulls have the upper hand on Friday’s $510M BTC options expiry.
Investors have been reducing their risk exposure as the Federal Reserve hikes interest rates and unwinds its record $8.9 trillion balance sheet. As a result, The Bloomberg Commodity Index (BCOM), which measures changes in the prices of crude oil, natural gas, gold, corn and lean hogs, is down 9% in the same period.
Traders continue to seek protection through US Treasuries and cash positions as San Francisco Fed President Mary Daly said on August 2 that the central bank’s fight against inflation is “far from over”. That said, the tighter monetary impact on inflation, employment levels and the global economy remains to be seen.
The bearish bets are mainly placed below $22,000
Bitcoin’s rally above $22,000 on July 27 caught bears by surprise as only 28% of puts for August 5 have been placed above that price level. Meanwhile, Bitcoin bulls may have been misled by the rally to $24,500 on July 30, as 59% of their bets are above $25,000.
A broader view using the 1.60 ratio between calls and puts shows more bullish bets because open interest for calls is $315 million vs. $195 million for puts.. However, with Bitcoin currently above $23,000, most bearish bets will likely be worthless.
For example, if the price of Bitcoin sustains above $23,000 at 8:00 am UTC on August 5, only $19 million of these put options will be available. This difference occurs because a right to sell Bitcoin at $22,000 or $20,000 is of no use if it trades above that level at expiration.
Bulls could pocket a $200 million profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on August 5 for call (bullish) and put (bearish) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
- Between USD 20,000 and USD 22,000: 100 call options vs. 3,700 put options. The net result favors the bears by $75 million.
- Between USD 22,000 and USD 24,000: 1,400 purchase options (calls) vs. 1,600 put options. The net result is balanced between call (buy) and put (sell) instruments.
- Between USD 24,000 and USD 25,000: 3,800 purchase options (calls) vs. 100 put options. The net result favors the bulls at $90 million.
- Between USD 25,000 and USD 26,000: 0 purchase options (calls) vs. 7,900 put options. The bulls extend their gains to $200 million.
This rough estimate considers call options used on bull bets and put options exclusively on neutral or bear trades. Even so, this oversimplification does not take into account more complex investment strategies.
Bears have less room to suppress Bitcoin price
Bitcoin bulls need to push the price above $24,000 on Aug 5 to lock in a $90 million profit. On the other hand, the bears’ best-case scenario calls for a push below $22,000 to lock in their profits at $75 million.
Nevertheless, Bitcoin bears had $140 million of leveraged short positions liquidated on July 26 and 27, according to data from Coinglass. Consequently, they have less margin needed to push the price down in the short term.
The most likely scenario is a tie, with the price of Bitcoin hovering between $22,000 and $24,000 before the options expiration on August 5.
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