On Aug. 16, Bitcoin saw a decrease in value below the $29,000 mark for the first time in 56 days. Analysts attributed this to the Federal Open Market Committee minutes, which expressed worries about inflation and the necessity of raising interest rates.
Despite the immediate reasons for the slump, the upcoming $580 million Bitcoin (BTC)options expiry on Friday favors the bears. They could potentially make a $140 million profit on Aug. 18, adding to the downward pressure on Bitcoin and making it difficult for BTC to find a bottom.
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In conclusion, the upcoming $580 million Bitcoin (BTC)options expiry on Friday favors the bears. They could potentially make a $140 million profit on Aug. 18, adding to the downward pressure on Bitcoin and complicating BTC’s search for a bottom.
Federal Reserve minutes had no major effect on traditional markets
On Aug. 16, Federal Reserve Chair Jerome Powell highlighted the 2% inflation target, prompting the U.S. 10-year Treasury yield to reach its highest level since October 2007. This led investors to move away from riskier assets such as cryptocurrencies and into cash positions and companies that are well prepared for such a scenario.
Prior to the release of the Fed minutes, Bitcoin had already fallen to $29,000, its lowest point in nine days. The impact of the minutes was not significant, especially considering the 10-year yield had been increasing, reflecting doubts about the Fed’s ability to control inflation.
Additionally, on Aug. 17, S&P 500 index futures only decreased by 0.6% relative to their pre-event level on Aug. 16. During the same time, WTI crude oil rose 1.7%, while gold dropped 0.3%.
It is also possible that concerns about China’s economy contributed to the decline. The country reported lower-than-expected retail sales growth and fixed asset investment, potentially affecting the demand for cryptocurrencies.
Although the exact causes of the price drop are still uncertain, there’s a chance that Bitcoin might reverse its trend after the weekly options expiry on Aug. 18.
Bitcoin bulls cast the wrong bet
Between Aug. 8 and Aug. 9, the price of Bitcoin briefly crossed the $29,700 mark, spurring optimism among traders using options contracts.
Deribit Bitcoin options aggregate open interest for Aug. 18. Source: Deribit
The 0.57 put-to-call ratio reflects the difference in open interest between the $365 million call (buy) options and the $205 million put (sell) options. However, the outcome will be lower than the $570 million total open interest since the bulls were surprised by the latest price drop below $29,000.
For example, if Bitcoin’s price trades at $28,400 at 8:00 am UTC on Aug. 18, only $3 million worth of call options will be accounted for. This distinction arises from the fact that the right to purchase Bitcoin at $27,000 or $28,000 becomes invalid if BTC trades below those levels upon expiration.
Below are the three most likely scenarios based on the current price action. The number of options contracts available on Aug. 18 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:
Given the increasing concern among investors about an upcoming economic slowdown due to actions taken by banks to control crypto inflation, it’s likely that Bitcoin bears will maintain their advantage. This trend isn’t limited to the upcoming Friday expiry and is expected to continue, especially since the chances of the BTC bulls’ primary short-term goal — the approval of a spot exchange-traded fund — are quite slim.
As a result, those on the bullish side find themselves in a difficult situation. The success of their call (buy) options relies on Bitcoin’s expiry price going above $28,500. The most likely scenario, where bears could walk away with a favorable outcome of $140 million, suggests the potential for a further correction in Bitcoin’s price.
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