Sunday, August 14

Why Bitcoin bears are trying to keep BTC price below $ 62K for Friday’s options expiration


Bitcoin’s (BTC) 90% gain so far this year was largely driven by the recent approval of the SEC’s exchange-traded fund (ETF) and in the first 48 hours of trading, the strategy ETF of ProShares Bitcoin ($ BITO) was able to accumulate $ 1.1 billion in assets under management.

On November 1, the US Treasury released its stablecoin report, which basically called on Congress to regulate the industry. In short, the task force expects government agencies to require stablecoin issuers to adhere to the same standards as insured depository institutions.

Although the consequences of a possible regulation of stablecoins for the cryptocurrency markets remain unknown, stablecoins are vital for exchanges, market makers, and retail investors when seeking protection. Despite this, investors should still be aware of the possibility that stablecoin issuers will react simply by moving their operations outside of US jurisdiction.

With less than 12 hours before the expiration of the $ 1.15 billion options on Friday, Bitcoin is trading in a descending channel and is facing resistance at the $ 62,000 to $ 63,000 level.

Bitcoin price on Coinbase in USD. Source: TradingView

The expectation of the ETF could have been the reason for the excessive optimism of the bulls, which can be seen in the bets of $ 68,000 and higher for the expiration of November 5. Even with $ 740 million stacked in call options, the bulls could have missed an opportunity to make some relevant gains.

Bitcoin options add open interest for November 5. Source: Bybt

At first glance, 11,215 BTC call options dominate weekly expiration by 82% compared to 6,146 BTC put instruments. Still, the 1.82 buy ratio is misleading because some of those prices now seem over the top.

For example, if the price of Bitcoin remains above $ 60,000 at 8:00 am UTC on November 5, only $ 70 million of the $ 405 million in put options will be available at expiration. There is no value in having the right to sell Bitcoin at $ 55,000 if it trades above that price.

Bears need less than $ 62,000 to balance the scale

Below are the four most likely scenarios for the maturity of $ 1.15 billion on November 5. 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 $ 58,000 and $ 60,000: 270 calls versus 1,800 put options. The net result favors put instruments (bearish) by $ 90 million.
  • Between $ 60,000 and $ 62,000: 630 calls versus 350 put options. The net result favors put instruments (bearish) by $ 15 million.
  • Between $ 62,000 and $ 64,000: 1,560 call options versus 370 put options. The net result is $ 75 million in favor of call (bull) instruments.
  • Above $ 64,000: 2,890 call options versus 100 put options. The net result is complete dominance, with the bulls making $ 175 million.

This gross estimate considers call options used in bullish strategies and put options exclusively in neutral to bearish operations. However, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price. Unfortunately, there is no easy way to estimate this effect.

Related: Bitcoin on-chain metric suggests 2017-style bull run will continue

Bulls have a clear chance of making a profit of $ 175 million

Currently, the price of Bitcoin hovers near $ 62,000 and there are incentives for bulls to push BTC up 3.5% to $ 64,000 before expiration on Friday. In that case, your estimated earnings should increase by $ 100 million.

On the other hand, considering Bitcoin’s 39% rally in October, the bears would be more than happy to take a loss of $ 15 million if the expiration price of BTC remains below $ 62,000.

Avoiding a $ 175 million profit from the bulls is the best-case scenario for the bears right now because during bull runs, the amount of effort a seller takes to hit the price is immense and generally ineffective.

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.