The 32% Bitcoin (BTC) weekly rally turned into the bears’ worst nightmare as the expiration of Friday’s $ 860 million options approaches. After breaking the $ 54,000 level, more than 99% of bearish bets using put options are likely to be worthless.
The bears are in a dangerous position, particularly as Bloomberg’s Crypto Outlook noted that Bitcoin’s $ 50,000 resistance was about to change support. Senior commodities strategist Mike McGlone cited factors such as increased adoption alongside declining supply on exchanges.
Bloomberg also noted that traditional financial investors’ concerns rose after protection against the possibility of a US government default rose to its highest level in six years. Additionally, one-year credit default swaps, or the cost of insuring against late payment, have risen to 27 basis points from 4 basis points in mid-September.
Another crucial metric that certainly fueled this week’s bull run was Bitcoin’s hash rate, the estimated processing power behind the network’s miners. Capacity took a major hit in May when China vetoed the use of coal-based power for cryptocurrency mining. Then, in early June, the country decided to ban cryptocurrency mining forever, temporarily disconnecting many miners, affecting the hash rate.
This week, the bulls took advantage of these favorable conditions and pushed Bitcoin to its highest level since May 12 at $ 55,000. As for the expiration of the $ 860 million options on October 8, the bears need a miracle to push the price below $ 50,000 to avoid significant losses.
As the above data shows, the bears made bets of $ 400 million by Friday’s expiration, but it appears they were caught off guard as 99% of the put options are likely to be worthless.
In other words, if Bitcoin sustains above $ 54,000 on Friday, only $ 2.7 million in bear-neutral put options will be activated at expiration. The right to sell (put option) Bitcoin at $ 50,000 becomes worthless if BTC trades above that price at 8:00 am UTC on October 8.
Open interest from bulls and bears is fairly balanced
The call-put ratio of 1.16 represents the slight difference between call options valued at $ 465 million versus put options of $ 400 million. Although it favors the bulls, this broader view needs a more detailed analysis because some bets are implausible considering the current price.
Below are the four most likely scenarios for Friday’s expiration. The imbalance that favors both sides represents the theoretical benefit. In other words, depending on the expiration price, the number of call (buy) and put (sell) contracts that are activated varies:
- Between $ 48,000 and $ 50,000: 3,515 call options versus 1,765 put options. The net result is $ 85 million in favor of call (bull) instruments.
- Between $ 50,000 and $ 54,000: 6,270 call options versus 735 put options. The net result is $ 290 million in favor of call (bull) instruments.
- Between $ 54,000 and $ 56,000: 6,930 calls versus 50 put options. The net result is $ 370 million in favor of call (bull) instruments.
- Above $ 56,000: 7,600 calls versus 0 put options. The net result is complete dominance with the bulls profiting $ 425 million.
This gross estimate considers that call options are used exclusively in bullish bets and put options in neutral to bearish operations. However, investors could have used a more complex strategy that typically involves different expiration dates.
Bears are shipwrecked one way or another
In short, Bitcoin bulls are in absolute control of Friday’s expiration and enough incentive to keep the price above $ 54,000. On the other hand, bears need a negative 10% move below $ 50,000 to avoid losing $ 370 million.
However, keep in mind that during bull runs, like the one Bitcoin is in right now, the amount of effort a seller must put in to liquidate longs is immense and generally ineffective. Simply put, if no surprises come before October 8, Bitcoin should continue its rally at higher prices.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.