The imminent $1.9 billion monthly Bitcoin options expiry on August 25 holds significance in determining the stability of the $26,000 support level. While the recent decline in the cryptocurrency market could be attributed to the United States Securities and Exchange Commission (SEC) postponing its decision on spot Bitcoin exchange-traded funds, there’s also a broader macroeconomic context to consider.
Should the Federal Reserve’s attempts to control inflation prove effective, it is likely that the trajectory of a stronger U.S. dollar will continue. This trend was evident as the U.S. Dollar Index (DXY), which measures the dollar against other currencies, reached its highest point in 76 days on August 22.
In order to avert a potential loss of $380 million linked to the expiration of monthly Bitcoin options at a value of $26,095, Bitcoin bulls must ensure that the cryptocurrency’s price remains above $27,000 by August 25.
The prospect of stringent regulations will prove advantageous to those bearish on Bitcoin.
Lately, cryptocurrency enthusiasts bullish on the market have been confronted with regulatory hurdles. This becomes evident in the ongoing legal disputes involving the top two cryptocurrency exchanges, Binance and Coinbase, who are currently embroiled in lawsuits with the SEC. Moreover, Ripple’s initial legal victory over the SEC is now facing an appeal by the regulatory authority.
Adding to these unfolding events, Bitstamp recently disclosed its choice to discontinue staking services for clients based in the United States. A significant aspect of the prevailing regulatory landscape in the U.S. revolves around determining whether Ether (ETH), currently valued at $1,655, should be categorized as a commodity or a security.
In another noteworthy development, Binance has declared the suspension of its crypto debit card offerings in Latin America and the Middle East. This move follows accusations of Binance also halting euro withdrawals and deposits through SEPA on August 20. The exchange has clarified that there is no set timeline for the restoration of these services.
Data indicates that there was an excessive level of optimism among bulls regarding the price of Bitcoin.
The open interest for the options expiration scheduled on August 25 is currently at $1.9 billion. Nonetheless, it is anticipated that the eventual sum might be lower, as some traders anticipate price levels surging to $29,000 or beyond. The unanticipated 12% decline in Bitcoin’s price between August 14 and August 19 caught bullish investors by surprise, as illustrated by the interest chart for Deribit Bitcoin options.
The put-to-call ratio of 0.56 highlights the disparity between the call (buy) open interest, valued at $1.2 billion, and the put (sell) options, valued at $685 million. Nevertheless, if Bitcoin’s price hovers around $26,500 at 8:00 am UTC on August 25, only call (buy) options amounting to $35 million will be viable. This discrepancy arises because the privilege to purchase Bitcoin at $27,000 or $28,000 becomes irrelevant if the BTC trades below those levels upon expiration.
Bears in the Bitcoin market are targeting a value below $26,000 in order to optimize their profits.
Outlined below are the four most probable scenarios based on the present price movement. The quantity of available options contracts for call (buy) and put (sell) instruments on August 25 varies according to the expiration price, determining the imbalance that favors either side and constitutes the theoretical profit.
This simplified estimation overlooks more intricate investment strategies. For instance, a trader might have engaged in selling a call option, resulting in negative exposure to Bitcoin above a specific price. Unfortunately, gauging this impact is not straightforward.
- Between $25,000 and $26,000: 100 calls vs. 15,100 puts. The net outcome is advantageous to put instruments by $380 million.
- Between $26,000 and $27,000: 1,400 calls vs. 11,000 puts. The net outcome is favorable to put instruments by $250 million.
- Between $27,000 and $28,000: 4,000 calls vs. 8,400 puts. The net outcome is advantageous to put instruments by $110 million.
- Between $28,000 and $29,000: 6,000 calls vs. 5,300 puts. The net outcome is evenly balanced between call and put options.
It’s noteworthy that for the bullish side to even the odds prior to the monthly expiration, they would need to achieve a 6% price increase from $26,400. In contrast, the bearish side only requires a modest 2% downturn below $26,000 to secure a $380 million advantage on August 25.
Given Bitcoin’s repeated dips below the $26,000 support level from August 21 to August 23, it would not be unexpected for this threshold to be tested again before the options expiry. Furthermore, considering the ongoing cryptocurrency regulatory environment, there seems to be minimal incentive for Bitcoin bulls to reverse the prevailing bearish momentum post the $1.9 billion monthly options expiration.
