On September 6, Bitcoin (BTC) broke below $19,000, the price reached its lowest level in 80 days. The move not only wiped out a 32% gain from July to August 15, but also wiped out an estimated $246 million worth of long-term (buy) futures contracts.
Bitcoin’s price is down for the year, but it’s important to compare its price action to other assets. Oil prices are currently down 23.5% since July, Palantir Technologies (PLTR) is down 36.4% in 30 days and Moderna (MRNA), a pharmaceutical and biotechnology company, is down 30.4% in the same period.
Inflation and fears of a global recession have kept investors away from riskier assets. This defensive move, seeking refuge in cash positions, particularly the dollar itself, pushed the 5-year yield on US Treasuries to 3.38%, the highest level in 15 years. By demanding higher premiums to hold government debt, investors are expressing their lack of confidence in the current rate of inflation.
Data released on September 7 showed that China’s exports rose 7.1% in August after rising 18% in July. Also, on September 6, German industrial orders data showed a 13.6% decline in July compared to the previous year. So, unless there is some break from traditional markets, there is not much hope for a further Bitcoin bull run.
Bears were overly optimistic.
Expiring open interest for the Sept. 9 pick is $410 million, but the actual figure will likely be lower because the bears were overconfident. These traders did not expect to hold $18,700 because their bets were targeting $18,500 and below.
A call-to-put ratio of 0.77 indicates a mismatch between $180 million in call (call) open interest and $230 million in put options. Currently, Bitcoin stands near $18,900, which means that most of the bets from both sides will be worthless.
If the price of Bitcoin remains below $20,000 at 8:00 am UTC on September 9th, only $13 million of these call (buy) options will be available. This difference occurs when BTC is trading below that level at the time of expiration, and the right to buy Bitcoin at $20,000 is worthless.
The bears need $18,000 to make a profit of $90 million
Below are the four most likely scenarios based on current price action. The number of option contracts available for the call (bull) and bear (bear) instruments on September 9 varies depending on the expiration price. The inequality for each side constitutes the theoretical profit:
- Between $17,000 and $18,000: 0 calls compared to 4,300. The Bears are in full control and have earned $130 million.
- Between $18,000 and $19,000: 0 calls compared to 5,050. The net result supports the set (bearish) instruments by 90 million dollars.
- Between $19,000 and $20,000: 700 calls compared to 1,900. The net result supports the bearish equipment by 50 million dollars.
- Between $20,000 and $21,000: 2,050 calls compared to 2,200. The net result is a balance between bulls and bears.
This raw estimate only applies to options used in hidden bets and call options from neutral to bullish trades. However, this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a put option gaining positive exposure to Bitcoin above a certain price, but unfortunately, there is no easy way to predict this outcome.
Related: Bitcoin price hits 10-week low amid US dollar rally warning
The Bulls have until September 9th to relieve their pain.
Bitcoin bulls pushed the price above $20,000 on September 9, looking to avoid losses of $130 million. On the other hand, the bears’ best-case scenario calls for a modest push below $18,000 to maximize their gains.
Bitcoin bulls have liquidated $246 million of long positions in two days, so the margin needed to push the price higher may be minimal. In other words, bears have a head start on hitting BTC below $19,000 before the weekly options expire.
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