Bears aim to pin bitcoin price below $ 42,000 until Friday’s $ 700 million expiration

Bitcoin (BTC) is trading on a downtrend from the strong rejection of $ 53,000 on September 7 and $ 3.4 billion over time The liquidation of contracts as well as the ban on crypto trading by China appear to have severely affected the morale of traders.

Adding to negative sentiment, major crypto exchanges like Binance and Huobi halted some services in mainland China and some of Ethereum’s biggest mining pools, like Sparkpool and BeePool, were forced to shut down altogether.

Bitcoin price in USD on Coinbase. Source: TradingView

Based on the graph above, it is possible to understand why buyers placed 80% of their bets at $ 44,000 or more. However, the last two weeks have definitely caused these call options to lose value.

On September 25, the People’s Bank of China (PBoC) released a national crypto ban and prohibits companies from providing financial transactions and services to market participants. The news triggered an 8% drop in the price of Bitcoin as well as a wider pullback in altcoins.

Bearish sentiment was confirmed after Tesla CEO Elon Musk expressed support for cryptocurrency at the Code Conference in California.

Musk said:

“It is not possible, I think, to destroy crypto, but it is possible for governments to slow its progress.”

Had we been in a neutral to bullish market, these remarks would likely have reversed the negative trend. For example, on July 21, Elon Musk said that Bitcoin had already hit its reference on renewable energies. As a result, the price of Bitcoin, which previously fell 12% in ten days, reversed the trend and rose 35% over the next ten days.

The October 1 expiration will be a test of strength for the bulls, as any price below $ 42,000 means a bloodbath with absolute dominance of put (put) options.

Bitcoin options pool interest open for October 1. Source: Bybt.com

Initially, neutral to bullish instruments of $ 285 million dominated the weekly expiration by 21% compared to puts (puts) of $ 320 million.

However, the call-to-put ratio of 1.21 is misleading as the excessive optimism seen in bulls could wipe out most of their bets if the price of Bitcoin stays below $ 43,000 at 8:00 UTC on Friday.

After all, what’s the point of a right to acquire Bitcoin at $ 50,000 if it is trading below that price?

The bears were also taken by surprise

Sixty-six percent of the put options, where the buyer owns the right to sell Bitcoin at a preset price, were placed at $ 42,000 or less. These neutral to bearish instruments will become worthless if Bitcoin trades above this price on Friday morning.

Below are the four most likely scenarios that take into account current price levels. The imbalance in favor of each side represents the potential profit from the expiration.

The data shows how many contracts will be available on Friday, based on the expiration price.

  • Between $ 40,000 and $ 41,000: 110 calls against 4,470 put options. The net result is $ 175 million in favor of protective bear instruments.
  • Between $ 41,000 and $ 43,000: 640 calls against 4000 put options. The bottom line continues to favor bears by $ 140 million.
  • Between $ 43,000 and $ 45,000: 1,780 calls against 2,070 put options. The net result is balanced between bears and bulls.
  • Above $ 45,000: 2,530 calls against 1,090 put options. The net result moves in favor of the bulls by $ 65 million.

This raw estimate considers call (call) options used in bullish strategies and put (put) options exclusively in neutral to bearish trades. Unfortunately, real life is not that simple as it is possible that more complex investment strategies will be deployed.

For example, a trader could have sold a put option, thereby gaining positive exposure to Bitcoin above a specific price. Therefore, there is no easy way to estimate this effect, so the simple analysis above is a good estimate.

As it stands, the bears have absolute control over the October 1 expiration and they have some good reason to continue to press the price below $ 43,000.

Unless unexpected buying pressure arises over the next 12 hours, the amount of capital required for bulls to force the market above the $ 45,000 threshold seems immense and unwarranted.

On the other hand, the bears need a negative 5% price change that brings BTC below $ 41,000 to increase their lead by $ 35 million. So this movement also shows little return for the amount of effort required.

The bull’s only hope lies in surprise positive news for the price of Bitcoin before October 1 at 8:00 UTC. If any sensible action is to happen, it will likely take place over the weekend, when there is less active flow.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.


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About Darnell Yu

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