Bitcoin (BTC) briefly broke above the $25,000 mark on Aug. 15, but the excitement lasted less than an hour and was followed by a 5% pullback in the next 5 hours. The resistance level turned out to be more problematic than expected, but may have given the bulls false hope for the upcoming $335M weekly options expiry.
The fleeting optimism of investors turned into a seller’s market on August 17, after the price of BTC crashed and reached the $23,300 support again. The negative move took place hours before the release of the Federal Open Markets Committee (FOMC) minutes from its July meeting. Investors are waiting to know if the Federal Reserve will continue to raise interest rates.
The negative news flow accelerated on August 16 after a US federal court authorized the Internal Revenue Service (IRS) to force crypto broker SFOX to reveal the transactions and identities of customers who are US taxpayers. The same strategy was used to obtain data from Circle, Coinbase and Kraken between 2018 and 2021.
This move could explain why betting on a Bitcoin price above $25,000 on Aug. 19 seemed like a sure thing a couple of days ago, and this would have incentivized bullish bets.
The bears did not expect the price of BTC to move above $24,000
Open interest for the August 19 options expiry is $335m, but the actual figure will be lower as the bears were too bullish. These traders may have been fooled by the brief drop to $22,700 on Aug. 10, because their bets for Friday’s options expiry extend as far as $15,000.
The call/put ratio of 1.29 shows the difference between the $188 million open interest for call options and the $147 million for put options. Currently, the price of Bitcoin is close to $23,300, which means that most of the bullish bets are probably worthless.
If the price of Bitcoin moves below $23,000 at 8:00 am UTC on August 19, only $1 million of these call options will be at stake. This difference occurs because a Bitcoin call at $23,000 is worth nothing if BTC trades below that level at expiration.
There is still hope for the bulls, but $25,000 seems a long way off
Here are the three most likely scenarios based on current price action. The number of option contracts available on August 19 for call (bullish) and put (bearish) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical gain:
- Between $21,000 and $23,000: 30 call options vs. 2,770 put options. The net result favors put instruments (downside) by USD 60 million.
- Between $23,000 and $25,000: 940 call options vs. 1,360 put options. The net result is balanced between bulls and bears.
- Between $25,000 and $26,000: 3,330 call options vs. 100 put options. The net result favors buying instruments (bullish) by USD 80 million.
This gross estimate considers that put options are used in bearish bets and call options exclusively in neutral or bullish operations. 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.
The bears will try to stall Bitcoin price below $23,000
Bitcoin bulls need to push the price above $25,000 on August 19 to make $80 million in profit. On the other hand, the bears’ best case scenario calls for a push below $23,000 to maximize their profits.
Bitcoin bulls just liquidated $144 million in leveraged long futures positions on Aug. 16, so they should have less room to drive the price higher. That being said, the bears have the upper hand to keep BTC below $23,000 ahead of tomorrow’s Friday options expiry.
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