Bitcoin holds $19k, but volatility is expected as Friday’s $2.2B BTC options expire.

This week, the $20,000 resistance is stronger than expected and after the rejection of the Bitcoin price at this level on September 27, BTC bulls still have reasons not to give up.

Based on the 4-month-long descending triangle, as long as the $18,500 support remains, Bitcoin price can determine whether the downtrend will continue until the end of October.

Bitcoin/USD 1 day price index. Source: TradingView

Bitcoin bulls may have been disappointed as BTC has failed to break above $20,000 several times, but macroeconomic events may cause a rally earlier than expected.

Some analysts point to the UK’s unexpected intervention in the bond market as a breach of the government’s debt credibility. On September 28, the Bank of England announced it would start buying long-term bonds to calm investors after a sharp rise in yields, the highest since 1957.

In justifying its intervention, the Bank of England said: “There is a potential material risk to the financial stability of the United Kingdom as there is no continuing or worsening problem in this market.” Taking this step is contrary to his pledge to sell $85 billion of bond holdings within 12 months. In short, the government’s credibility has been called into question and as a result investors are looking for very high returns to hold UK debt.

The government’s efforts to curb inflation are starting to hurt corporate earnings, and according to Bloomberg, Apple recently backed plans to increase production on September 27. Amazon, the world’s largest retailer, has reportedly shelved plans to open 42. Utilities, such as MWPVL International Inc.

That’s why the $2.2 billion bitcoin (BTC) monthly options that expire on September 30 put a lot of price pressure on the bulls, although the bears look a little better as bitcoin tries to hold up to $19,000.

Most bullish bets were placed over $21,000.

Bitcoin’s rally to $22,500 resistance on September 12 signaled the bulls to expect a continuation of the uptrend. This is evident because as of September 30, only 15% of call (buy) options were settled at $21,000 or less. This means Bitcoin bears are better positioned with $2.2 billion in monthly options expiration.

Bitcoin options include open interest for September 30. Source: CoinGlass

A broader view using a call to put ratio of 1.49 shows a skewed situation with $1.26 billion in open interest versus $850 million in put options. However, Bitcoin is currently standing around $19,000 and the bears hold the upper hand.

If the price of Bitcoin stays below $20,000 at 8:00 am UTC on September 30th, only $37 million of these call options will be available. This difference occurs because a Bitcoin call right at $20,000 or $21,000 is worthless if it trades below the expiration level.

Bears can pocket a profit of 350 million dollars

Below are the four most likely scenarios based on current price action. The number of option contracts available for call (bull) and bear (bear) instruments on September 30 varies depending on the expiration price. The inequality for each side constitutes the theoretical profit:

  • Between $18,000 and $19,000: 500 calls compared to 19,800. The net result is 350 million dollars in favor of the bears.
  • Between $19,000 and $20,000: 2,000 calls compared to 16,000. The net result backs the bet at $270 million.
  • Between $20,000 and $21,000: 5,900 calls compared to 12,700. The net result is $135 million in favor of the Bears.
  • Between $21,000 and $22,000: 10,100 calls compared to 11,300. The net result is a balance between bulls and bears.

This raw estimate only applies to call options and options used in leveraged bets on neutral-to-bear trades. However, this oversimplification ignores more complex investment strategies.

Regulatory pressure could complicate matters for Bitcoin bulls.

Bitcoin bulls will need to push the price above $21,000 on September 30 to balance the balance and avoid the $350 million loss. However, the chairman of the US Federal Reserve on September 27 called the regulation of “crypto activities” and warned of “significant structural issues around the lack of transparency”, so Bitcoin bulls seem out of luck.

If the bears dominate at the end of September’s monthly polls, this will likely add firepower to further bets on the downside of Bitcoin’s price. However, at the moment, there is no sign that the bulls can turn the tables and avoid the pressure of the triangle coming down from the length of 4 months.