A wave of macroeconomic and crypto-specific factors is expected to influence the $1.9 billion options expiration this week.
The upcoming $1.9 billion worth of Bitcoin monthly options expiration on August 25 is key to defining whether the $26,000 support level will hold. You could blame the recent sell-off in the cryptocurrency market on the US Securities and Exchange Commission (SEC) delaying its decision on Bitcoin spot ETFs, but there’s also the macroeconomic outlook.
If the Federal Reserve’s efforts to curb inflation work, the trend of a stronger US dollar is likely to continue. This was made clear when the US dollar index (DXY), a measure of the dollar against other currencies, reached its highest level in 76 days on August 22.
To avoid a potential loss of $380 million due to the €24,132 Bitcoin BTC options monthly expiration, Bitcoin bulls need to ensure that the Bitcoin price trades above $27,000 before August 25.
Bitcoin bears will benefit from the threat of harsh regulation
Cryptocurrency bulls have been running into regulatory issues of late. This is evident as the two major cryptocurrency exchanges, Binance and Coinbase, are currently locked in lawsuits with the SEC. Furthermore, the initial victory celebrated by Ripple against the SEC is being appealed by the regulatory body.
Furthermore, Bitstamp has recently revealed its decision to discontinue betting services for US-based clients. A fundamental concern in the current US regulatory landscape revolves around the classification of Ether ETH €1,526 as a commodity or security.
In addition, Binance has announced the suspension of its cryptocurrency debit card offers throughout Latin America and the Middle East. This decision follows allegations that Binance also suspended euro deposits and withdrawals via SEPA on August 20. The exchange clarified that there is no defined deadline to restore service.
Data Shows Bulls Were Overly Bullish on Bitcoin Price
Open interest for the options to expire on August 25 amounts to USD 1.9 billion. However, the final amount is expected to be lower as some traders expect the price to reach $29,000 or even higher. The unexpected 12% correction in the price of Bitcoin from August 14 to August 19 certainly caught bullish investors off guard, as evident in Deribit’s Bitcoin options interest chart.
The 0.56 put-to-call ratio reflects the imbalance between $1.2 billion of open interest in call options and $685 million in put options. However, if the Bitcoin price sustains near $26,500 at 8:00 a.m. UTC on August 25, only $35 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $27,000 or $28,000 is worthless if BTC trades below that level at expiration.
Bitcoin bears aim below $26,000 to maximize their gains
Below are the four most likely scenarios based on current price developments. The number of option contracts available on August 25 for the buy (call) and sell (put) instruments varies depending on the expiration price. The imbalance that favors each side constitutes the theoretical benefit.
This crude estimate does not take into account more complex investment strategies. For example, a trader could have sold a call option, thereby gaining negative exposure to Bitcoin above a specified price. Unfortunately, it is not easy to estimate this effect.
• Between $25,000 and $26,000: 100 call options vs. 15,100 put options. The net result favors sales instruments in USD 380 million.
• Between $26,000 and $27,000: 1,400 call options vs. 11,000 put options. The net result favors sales instruments in USD 250 million.
• Between $27,000 and $28,000: 4,000 call options vs. 8,400 put options. The net result favors sales instruments in USD 110 million.
• Between $28,000 and $29,000: 6,000 call options vs. 5,300 put options. The net result is balanced between call and put options.
Note that for the bulls to even out before the monthly expiration, they need to achieve a 6% price rise from $26,400. By contrast, the bears only need a modest 2% correction below $26,000 to secure a $380 million lead on Aug. 25.
Given Bitcoin’s repeated falls below the $26,000 support level between August 21-23, it would not be surprising if this level were tested again before options expiration. Also, 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.
By Audy Catañeda
