The combination of bearish factors this week was enough to push the price of Bitcoin (BTC) to a 46-day low, and it wiped out nearly 86% of the $2 billion worth of calls (purchases) that expired on Sept 24.
There is still room for some surprises, especially given that the deadline is 08:00 UTC on September 24th. However, the bears’ incentive seems insignificant as a test of less than $40,000 on September 21 led to the liquidation of less than $250 million of futures contracts.
On September 22, Evergrande Group allayed some concerns about default after it confirmed it would pay interest on the land bond. Despite this, investors still expected the company to issue dollar bonds, owned primarily by international investors.
Bitcoin price on Coinbase in US dollars. Source: TradingView
The recent move of $48,000 on September 18 and 19 was not enough to break the resistance of the 20-day moving average. Bulls are now clinging to hope of a “back to the middle” grip, given that the height of fears over China’s debt contagion is over. In addition, no short-term action followed from an interview with SEC Chairman Gary Gensler in the Washington Post on September 22.
If historical data plays any role in the price of bitcoin, September has shown negative results in four of the previous five years. This downtrend will continue if BTC closes below $47,110 in September, closing on August 31.
Bitcoin options represent the total open interest for September 24th. Source: Bybt.com
The monthly expiration date in September will be a test of the bulls’ strength because 86% of $2 million put (call) options are placed at or above $46,000. Therefore, if BTC trades below this price on September 17, the open interest in the put option will drop from neutral to bearish to $285 million.
A call option is the right to buy bitcoin at a predetermined price during a certain expiration date. Thus, the $50,000 put option becomes useless if bitcoin is trading at a price below this price. On September 24th, at 08:00 UTC.
Bitcoin price is dominated by bulls, but they are overconfident
The broader view of the bulls gives the bulls a huge advantage because the put (call) options instrument has a total open interest rate of $2 billion, which is 90% more than the neutral bearish.
However, this data is misleading because the bull’s excessive optimism is likely to negate most of its games. Even a small open interest of $1.05 billion in options sales (sales) may be enough to offset these competing forces.
Here are the four most likely scenarios based on the current price level. An imbalance in favor of both parties is the result of a possible expiration. The data below shows how many contracts will be available on Friday, based on the expiration price.
Between $38,000 and $40,000: 3,390 calls to 8,695 points. The net result is $21 million in favor of protective position tools (bearish).
$40,000 to $46,000: Net balance between bears and bulls.
Between $46,000 and $50,000: 11,820 calls to 3,050 pips. The net result is $42 million in favor of call options (bulls).
Over $50,000: 16,370 calls to 1,400 points. The bulls will bring in a profit of $75 million.
This rough estimate naively assumes that buy (buy) options are used exclusively in bullish strategies, and put (call) options are used in neutral or bearish trades. In the meantime, real life is not that easy because more sophisticated investment strategies can be used.
There are incentives for the bears to keep BTC below $46,000.
Buyers and sellers will do their best in the hours leading up to Friday. The bears will try to minimize the damage by keeping the price below $46,000. On the other hand, the bulls have good control if BTC stays above this level.
Is $75 Million in Profits Enough to Justify the $50,000 Agreement? Not really, but as mentioned earlier, these are simplified estimates. This will mainly depend on how the market makers and arbitrage desks are located, which is a guess to some.
There is still room for more volatility ahead of Friday, but both sides look equally balanced despite the flashy $3 billion headline.