The price of Bitcoin (BTC) crashed below $19,000 on September 6, taking the price to its lowest level in 80 days. The move not only completely erased the entirety of the 32% gains accrued from July to August 15, but also wiped out $246 million of leveraged (buy) futures contracts.
The price of Bitcoin has fallen in the year, but it is important to compare its evolution with that of other assets. The price of oil is down 23.5% since July, Palantir Technologies (PLTR) is down 36.4% in 30 days and Moderna (MRNA), a pharmaceutical and biotech company, is down 30.4% in the same period.
Inflationary pressure and fears of a global recession have driven investors away from riskier assets. Seeking refuge in cash positions, mainly in the dollar itself, this protection movement has caused the yield on the 5-year US Treasury bond to reach 3.38%, approaching its highest level in 15 years. By demanding a higher premium to hold government debt, investors are signaling their lack of confidence in current inflation controls.
Data published on September 7 shows that Chinese exports grew 7.1% in August from a year earlier, after rising 18% in July. On the other hand, industrial orders data from Germany, published on September 6, shows a contraction of 13.6% in July compared to the previous year. Therefore, until there is a decoupling from traditional markets, there is not much hope that the Bitcoin bull run will be sustainable.
The bears were too bullish
Open interest for the September 9 options expiry is $410m, but the actual figure will be lower as the bears got overconfident. These traders did not expect $18,700 to hold because their bets were on prices of $18,500 and below.
The 0.77 call-to-put ratio reflects the imbalance between the $180 million of open interest on call options and the $230 million of put options. Bitcoin is currently hovering near $18,900, which means that most bets on both sides are likely to lose value.
If the price of Bitcoin remains below $20,000 at 8:00 am UTC on September 9, only $13 million of these call options will be at stake. This difference is because the right to buy Bitcoin at $20,000 is worthless if BTC trades below that level at expiration.
Shorts target $18,000 to lock in $90 million profit
Below are the four most likely scenarios based on the current price action. The number of option contracts available on September 9 for call (bullish) and put (bearish) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical gain:
- Between $17,000 and $18,000: 0 call options vs. 4,300 put options. The bears completely dominate, with a profit of $130 million
- Between $18,000 and $19,000: 0 call options vs. 5,050 put options. The net result favors put instruments (downside) by USD 90 million.
- Between $19,000 and $20,000: 700 call options vs. 1,900 put options. The net result favors put instruments (downside) by USD 50 million.
- Between $20,000 and $21,000: 2,050 call options vs. 2,200 put options. The net result is balanced between bulls and bears.
This gross estimate considers put options used on bearish bets and calls exclusively on neutral or bullish strategies. Even so, this oversimplification does not take into account more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there is no easy way to estimate this effect.
Bulls have until September 9 to ease their pain
Bitcoin bulls need to push the price above $20,000 on Sept. 9 to avoid a possible $130 million loss. On the other hand, the bears’ best case scenario calls for a slight push below $18,000 to maximize their profits.
Bitcoin bulls just saw $246 million of leveraged long positions liquidated in two days, so they might have less room to push the price higher. In other words, the bears have an advantage to pin BTC price below $19,000 before the weekly options expiration.
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