Bitcoin (BTC)’s weekly rally of 32% has been a bear’s worst nightmare as the $860 million expiration date approaches. After breaking the $54,000 level, more than 99% of bearish games that involve short (sell) options are likely to be useless.
Björner is in a precarious position, especially after Bloomberg’s crypto forecast indicated that Bitcoin’s $50,000 resistance was on the verge of flipping support. Mike McGlone, chief commodity strategist, cited factors such as increased diffusion and diminished supply on stock exchanges.
Bloomberg also noted that fears of traditional financial investors have intensified after protection against the possibility of a US government standard reached its highest level in six years. In addition, since mid-September, annual default swaps or the cost of default insurance has risen to 27 basis points from 4 basis points.
Bitcoin price on Bitstamp in US dollars. Source: TradingView
Another major account that has certainly led the bullish gains this week is Bitcoin’s hash rate, the computed computing power that powers the network’s miners. Capacity was hit hard in May when China vetoed the use of coal for crypto mining. In early June, the country decided to permanently ban cryptocurrency mining, which temporarily incapacitated many miners, affecting the speed of cannabis.
Bitcoin has a 7-day average hash rate in terahs per second. Source: Blockchain.com
This week, bulls took advantage of these favorable conditions and pushed Bitcoin to its highest level since May 12 at $55,000. The $860 million options expire Friday the 8th. October. Bears need a miracle to get the price below $50,000 to avoid big losses.
On October 8, bitcoin options will accumulate open interest. Source: Bybt
As the above data shows, the bears spent $400 million in the game at the end of Friday, but they seemed surprised that 99% of the put options were likely not viable.
In other words, if bitcoin stays above $54,000 on Friday, only $2.7 million of neutral bearish put options will be activated at expiration. The right to sell (Put) $50,000 Bitcoin becomes useless if BTC is trading above this price at 08:00 UTC on Friday.
Open interest is fairly balanced between bulls and bears.
The buy/buy rate of 1.16 is the small difference between the $465 million put (call) options and the $400 million put (call) option. While this favors the bulls, this broader view requires more detailed analysis as some games are unlikely given the current price.
Here are the four most likely scenarios for a Friday expiration. The disadvantage that is in the interest of each side is the theoretical profit. In other words, depending on the expiration price, the number of call (buy) and contract (sell) contracts that become active varies:
Between $48,000 and $50,000: 3,515 calls for 1,765 positions. The net result is $85 million, which is in favor of up-and-coming gadgets.
Between $50,000 and $54,000: 6,270 calls for 735 pips. The net result is $290 million, which is in favor of buy (bullish) instruments.
$54,000 to $56,000: 6,930 calls for 50 points. The net result is $370 million, which is in favor of buy (bullish) instruments.
Over $56,000: 7,600 calls for 0 clubs. The net result is complete domination with the bulls earning $425 million.
This rough estimate assumes that buy options are used exclusively in bullish play, and put options are used in trades from a neutral to a bearish position. However, investors could have used a more complex strategy, which usually includes different expiration dates.
Bears are destroyed somehow
To summarize, the bulls have absolute control over the Friday expiration and enough incentive to keep the price above $54,000. On the other hand, bears need a negative 10% impact of less than $50,000 to avoid losses of $370 million.
However, keep in mind that the amount of effort a seller needs to put in to settle long positions is massive and usually ineffective during bullish periods like Bitcoin at the moment. Simply put, if there are no surprises before October 8, Bitcoin should continue to collect at higher rates.