The upcoming $3 billion Bitcoin (BTC) monthly options expiration on September 29 could prove crucial to the $26,000 support level.
BTC price is facing serious headwinds
On the one hand, Bitcoin’s recognition in China appears to be strengthening after a Shanghai court report recognized digital currencies as unique and non-reproducible.
Conversely, Bitcoin spot exchange trading volume has fallen to a five-year low, according to on-chain analytics firm CryptoQuant. Analyst Cauê Oliveira pointed out that a key factor behind this decline in trading activity is growing fears about the macroeconomic outlook.
Despite the increase in long-term holders, the reduced trading volume poses a risk of unexpected volatility. This means that price fluctuations due to liquidations in derivatives contracts could potentially cause structural market damage if there are not enough active participants.
Additionally, there is growing unease among traditional financial institutions when it comes to processing crypto-related payments.
JPMorgan Chase, the largest bank in North America, is reportedly banning transfers “related to crypto assets” within its Chase retail division. The reason given is to protect against possible involvement in fraudulent or fraudulent activities.
Finally, Bitcoin holders are worried as the Dollar Strength Index (DXY), a measure of the dollar’s strength against other currencies, hit 106 on September 26, its highest level in 10 months.
Historically, this index has an inverse correlation with risky assets and tends to rise when investors seek safety in cash positions.
Bitcoin bulls too optimistic?
Open interest for the September 29 options expiration currently stands at $3 billion. However, the final amount is expected to be lower due to optimistic expectations that Bitcoin price will reach $27,000 or more.
The unsuccessful attempt to break through the $27,200 mark on September 19 may have contributed to the overconfidence of Bitcoin investors.
The put-to-call ratio of 0.58 reflects the imbalance between the open call (buy) options of $1.9 billion and the put (sell) options of 1.1 billion US dollars.
However, if Bitcoin price stays near $26,300 at 8:00 a.m. UTC on August 25, only $120 million worth of call (buy) options will be available. This difference arises because the right to buy Bitcoin at $27,000 or $28,000 is useless if the price of BTC is below that level at expiration.
Bitcoin is eyeing a value below $26,000 for maximum profit potential
Below are the four most likely scenarios based on current price trends. The number of options contracts available on September 29 for call (buy) and put (sell) instruments varies depending on the expiration 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: 1,400 calls vs. 19,300 puts. The net result favors put instruments by $430 million.
- Between $26,000 and $27,000: 6,200 calls vs. 12,600 puts. The net result favors put instruments by $170 million.
- Between $27,000 and $27,500: 9,900 calls vs. 10,100 puts. The net result is balanced between call and put options.
- Between $27,500 and $28,000: 12,000 calls versus 8,900 puts. The net result favors the call instruments by $85 million.
It is worth noting that bulls need to achieve a 3.2% price increase from $26,200 to level the playing field before the monthly expiry. In contrast, the bears only need a minor 1% correction below $26,000 to gain a $430 million advantage on September 29th.
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Given that Bitcoin traded below the $26,000 support level between September 1 and September 11, it would not be surprising to see this level breached again as options expiration approaches. Additionally, investor sentiment is becoming increasingly risk-off, as evidenced by the S&P 500 falling to its lowest level since June.
Consequently, the likelihood of BTC price falling below $26,000 by September 29 remains high unless there is some major news or event that strongly favors Bitcoin bulls.
This article is for general information purposes and is not intended to constitute, and should not be construed as, legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.
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