Most Bitcoin (BTC) traders would rather see a sharp price correction and subsequent recovery rather than suffer for several months below $24,000. However, BTC has been doing the opposite since June 14 and its latest struggle was the asset’s failure to break above the $22,000 resistance level. Because of this, most traders hold off on their bullish expectations until BTC records a daily close above $24,000.
Events outside the cryptocurrency market are the primary factor affecting investors’ views on digital assets and on July 14, US Treasury Secretary Janet Yellen warned that inflation was “unacceptably high” and bolstered support for the Federal Reserve’s efforts. When asked about the impact of higher interest rates on the economy, Yellen recognized the risks of a recession.
On the same day, JPMorgan Chase announced a 28% drop in profit over the previous year despite posting stable returns. The difference comes mainly from the $1.1 billion in credit loss provisions due to a “modest deterioration” in its economic outlook.
Bitcoin’s correlation with the S&P 500 remains incredibly high and investors fear that a potential crisis in the global financial sector will lead to a retest of the low of $17,600 from June 18.
S&P 500 and Bitcoin/USD 30-day correlation. Source: TradingView
The correlation scale ranges from negative 1, which means that the selected markets move in opposite directions, to positive 1, which reflects a perfect and consistent movement. The variance or no relationship between the two origins will be represented by zero.
The S&P 500 and Bitcoin 30-day correlation currently stands at 0.87, which has been the benchmark for the past four months.
Most bullish bets are above $21,000
Bitcoin’s failure to break above $22,000 on July 8 surprised the bulls because only 2% of July 15 call options were placed below $20,000. Thus, the bitcoin bears are in a slightly better position to expire the $250 million weekly options.
Bitcoin options collect open interest on July 15th. Source: CoinGlass
The broader view using the buy/buy ratio of 1.15 shows more bullish bets as the open interest for order (buy) stands at $134 million versus put options of $116 million. However, with Bitcoin currently below $21,000, it is likely that most of the bullish bets will become worthless.
If the Bitcoin price remains below $21,000 at 8:00 AM UTC on July 15, only $25 million worth of call (buy) options will be available. This difference occurs because there is no use in the right to buy Bitcoin at $21,000 if it is trading below that level at expiration.
Bears can win $100 million
Here are the three most likely scenarios based on current price action. The number of options contracts available on July 15 for the buy (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical profit:
Between $18,000 and $19,000: 10 calls for 5,200 puts. The net result favors bears by $100 million.
Between $19,000 and $20,000: 200 calls for 3,400 puts. The net result gives the Bears a $60 million advantage.
Between $20,000 and $21,000: 1,300 calls versus 1,700 puts. The net result is balanced between bulls and bears.
This crude estimate takes into account buying options used in bullish bets and selling options exclusively in neutral to bearish trades. However, this oversimplification overlooks more complex investment strategies.
Related: Bitcoin Fights Major Trend Line Near $20K As US Dollar Index Reaches 20-Year High
Futures markets show that bears are in a better position
Bitcoin bears need to press the price below $19,000 on July 15 to lock in a $100 million profit. On the other hand, the best-case scenario for the bulls would require a higher payment of $20,000 to balance the scales.
The lack of appetite from professional CME bitcoin futures traders indicates that bulls are less inclined to push the price higher in the short term.
With that said, the most likely scenario favors bears, and to lock in that bitcoin price it just needs to trade below $21,000 with the July 15 options expiring.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.