Written by 6:53 pm Wealth Building Views: [tptn_views]

Bitcoin price breaks from range with drop below $28K, and options tilt toward BTC bears

On August 16, Bitcoin (BTC) closed below $29,000 for the primary time in 56 days. Analysts quickly pointed to this week’s FOMC minutes, which expressed concerns about inflation and the necessity to increase rates of interest, because the likely cause.

Despite the immediate reasons for the drop, the upcoming $580 million Bitcoin options expiry on Friday has favored the bears. They could potentially make a $140 million profit on August 18, adding to the downward pressure on Bitcoin and complicating BTC’s seek for a bottom.

Federal Reserve minutes didn’t impact traditional markets

On Aug. 16, Federal Reserve Chair Jerome Powell emphasized the two% inflation goal. This pushed the U.S. 10-year Treasury yields to their highest level since October 2007, prompting investors to shift away from riskier assets like cryptocurrencies to favor money positions and firms which are well prepared for such a scenario.

Notably, Bitcoin had already fallen to $29,000, its lowest point in 9 days, prior to the discharge of the Fed minutes. The impact of the minutes was limited, especially considering the 10-year yield had been rising, indicating skepticism in regards to the Fed’s ability to manage inflation.

Additionally, on August 17, S&P 500 index futures only dropped by 0.6% in comparison with their pre-event level on August 16. During the identical time, WTI crude oil gained 1.7%, while gold traded down 0.3%.

Concerns about China’s economy may need also contributed to the decline. The country reported lower-than-expected retail sales growth and glued asset investment, potentially affecting the demand for cryptocurrencies.

Although the precise causes of the value drop remain uncertain, there is a possibility that Bitcoin could reverse its trend after the weekly options expiry on August 18.

Bitcoin bulls forged the unsuitable bet

Between August 8 and August 9, the value of Bitcoin briefly crossed the $29,700 mark, sparking optimism amongst traders using options contracts.

The 0.57 put-to-call ratio reflects the difference in open interest between the $365 million call (buy) options and the $205 million put (sell) options. However, the end result might be lower than the $570 million total open interest for the reason that bulls were caught by surprise with the most recent price drop below $29,000.

For example, if Bitcoin’s price trades at $28,400 at 8:00 am UTC on Aug. 18, only $3 million price of call options might be accounted for. This distinction arises from the incontrovertible fact that the suitable to buy Bitcoin at $27,000 or $28,000 becomes invalid if BTC trades below those levels upon expiration.

Below are the three most certainly scenarios based on the present price motion. The variety of options contracts available on Aug. 18 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring either side constitutes the theoretical profit:

  • Between $26,000 and $28,000: 100 calls vs. 5,300 puts. The net result favors the put (sell) instruments by $140 million.
  • Between $28,000 and $28,500: 100 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $60 million.
  • Between $28,500 and $29,500: 600 calls vs. 1,300 puts. The net result favors the put (sell) instruments by $20 million.

Given the growing concern amongst investors about an upcoming economic slowdown as a result of actions taken by central banks to manage inflation, it’s likely that Bitcoin bears will maintain their advantage. This trend is not limited to the upcoming Friday’s expiry and is predicted to proceed, especially since the possibilities of the BTC bulls’ primary short-term goal – the approval of a spot ETF – are quite slim.

As a result, those on the bullish side find themselves in a troublesome spot. The success of their call (buy) options relies on Bitcoin’s expiry price going above $28,500. The most certainly scenario, where bears could walk away with a positive end result of $140 million, suggests the potential for an additional correction in Bitcoin’s price.

This article is for general information purposes and is just not intended to be and shouldn’t be taken as legal or investment advice. The views, thoughts, and opinions expressed listed below are the writer’s alone and don’t necessarily reflect or represent the views and opinions of Cointelegraph.

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