Bitcoin options data points to an interesting result after this week’s $1.9 billion decline

The upcoming expiration of $1.9 billion monthly bitcoin options on August 25 is crucial to whether the $26,000 support level will hold. One could attribute the recent sell-off in the cryptocurrency market to the US Securities and Exchange Commission delaying its decision on spot Bitcoin exchange-traded funds, but there’s also the macro perspective.

If the Federal Reserve’s efforts to curb inflation succeed, the trend towards a stronger US dollar is likely to continue. This was evident when the US Dollar Index (DXY), a measure of the dollar against other currencies, hit a 76-day high on August 22.

To avoid a potential $380 million loss due to Bitcoin (BTC) options monthly expiration, Bitcoin bulls need to ensure Bitcoin’s price stays above $27,000 by Aug. 25.

Bitcoin bears will benefit from the threat of tight regulation

Cryptocurrency bulls have been facing regulatory challenges lately. This is evident as the two largest cryptocurrency exchanges, Binance and Coinbase, are currently locked in litigation with the SEC. Additionally, Ripple’s initial victory over the SEC is now being challenged by the regulator.

In addition to these developments, Bitstamp recently announced its decision to discontinue staking services for US-based customers. A key concern in the current US regulatory landscape revolves around the classification of ether (ETH) as either a commodity or a security.

Additionally, Binance announced the suspension of its crypto debit card offerings in Latin America and the Middle East. This decision follows allegations that Binance also suspended euro withdrawals and deposits via SEPA on August 20. The exchange clarified that there is no clear timeline for the service’s reintroduction.

Data shows that bulls have been overly bullish on Bitcoin price

Open interest for the August 25 options expiration is $1.9 billion. However, the final amount is expected to be less as certain traders anticipate a price level of $29,000 or even higher. The unexpected 12% correction in bitcoin price from Aug. 14-19 certainly caught optimistic investors by surprise, according to Deribit’s bitcoin options interest rate chart.

Bitcoin options aggregate open positions for August 25th. Source: Deribit

The put-to-call ratio of 0.56 reflects the mismatch between the $1.2 billion of open call (call) options and the $685 million of put (put) options -dollar reflected. However, if the bitcoin price stays near $26,500 at 8:00 a.m. UTC on August 25, only $35 million worth of these call (buy) options will be available. This difference arises because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC is trading below that level at expiry.

Bitcoin bears aim below $26,000 to maximize profits

Below are the four most likely scenarios based on current price action. The number of option contracts available on August 25 for call (buy) and put (sell) instruments varies by expiry price. The imbalance in favor of each side represents the theoretical gain.

This rough estimate does not take into account more complex investment strategies. For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin at a certain price. Unfortunately, there is no easy way to estimate this effect.

• Between $25,000 and $26,000: 100 calls vs. 15,100 puts. The net result favors put instruments by $380 million.
• Between $26,000 and $27,000: 1,400 calls vs. 11,000 puts. The net result favors put instruments by $250 million.
• Between $27,000 and $28,000: 4,000 calls vs. 8,400 puts. The net result favors put instruments by $110 million.
• Between $28,000 and $29,000: 6,000 calls vs. 5,300 puts. The net result is balanced between call and put options.

Note that the bulls need to hit a 6% price increase from $26,400 to level the playing field before the month’s end. In contrast, the bears need only a modest 2% correction below $26,000 to secure a lead of $380 million on Aug. 25.

Given Bitcoin’s repeated plunges below the $26,000 support level on Aug. 21-23, it wouldn’t be surprising to see that level retested before the options expire. Additionally, given the current cryptocurrency regulatory landscape, there is minimal incentive for bitcoin bulls to reverse the prevailing bearish momentum after the $1.9 billion monthly options expire.

This article is provided for general informational purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.

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