Bitcoin bulls aim for $25K price on Friday’s $510M options expiry

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Fifty days have passed since Bitcoin (BTC) last closed above $24,000, leaving even the sharpest traders questioning whether a permanent recovery is possible. However, despite the weak price action, the bulls have the upper hand at the $510 million BTC option expiring on Friday.

Bitcoin Index/USD 1-Day Price. Source: TradingView

Investors are hedging their risk appetite as the Federal Reserve raised interest rates and unpacked its record $8.9 trillion balance sheet. As a result, the Bloomberg Commodity Index (BCOM), which measures price changes in crude oil, natural gas, gold, corn and lean hogs, has traded down 9% over the same period.

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Traders continue to seek protection through US Treasury and cash positions as San Francisco Fed Chair Mary Daly said on August 2 that the central bank’s fight against inflation is “far from complete.” That being said, the tightening monetary impact on inflation, employment levels and the global economy is yet to be seen.

Bearish bets mostly below $22,000

Bitcoin’s recovery of over $22,000 on July 27 came as a surprise as only 28% of the August 5 put options are placed above such price levels. Meanwhile, on July 30, bitcoin bulls could be fooled by the $24,500 pump as 59% of their stakes are above $25,000.

Bitcoin Options Total Open Interest for August 5. Source: CoinGlass

A broader approach using a 1.60 call-to-put ratio shows a more bullish bet because the call (buy) open interest is $315 million against the $195 million put (sell) options. Still, as Bitcoin currently sits above $23,000, most bearish bets may turn out to be worthless.

For example, if the price of bitcoin stays above $23,000 on August 5th at 8:00 AM UTC, only $19 million worth of these put options will be available. This difference occurs because the right to sell bitcoin for $22,000 or $20,000 is of no use if it trades above that level at expiration.

Bull Could Make $200 Million Profit

Below are the four most likely scenarios based on current price action. The number of options contracts available on August 5 for call (bull) and put (bear) instruments varies depending on the expiration price. The imbalance in favor of each of the parties constitutes the theoretical advantage:

  • Between $20,000 and $22,000: 100 calls vs 3,700 puts. The net result is in favor of the bears of $75 million.
  • Between $22,000 and $24,000: 1,400 call vs 1,600 put. The net result is balanced between Call (Buy) and Put (Sell) instruments.
  • Between $24,000 and $25,000: 3,800 call vs 100 put. The net result supports the bulls by $90 million.
  • Between $25,000 and $26,000: 0 call vs 7,900 put. The Bulls increased their profit to $200 million.

This crude estimate considers call options used in bullish bets, and especially put options in neutral-to-bearish trades. Still, this over-simplification disregards more complex investment strategies.

related: Inflation punishes the prudent while bitcoin gives hope for the future – Jordan Peterson

Bears Require Low Margins to Suppress Bitcoin Price

Bitcoin bulls need to push the price above $24,000 on August 5th to make gains of $90 million. On the other hand, bearish best case pressure needs to be below $22,000 to set its profit at $75 million.

However, according to data from Coinglass, $140 million of leveraged short positions were liquidated in bitcoin bears on July 26-27. As a result, they have less margin required to drive the price down in the short term.

The most likely scenario is a draw, which could result in the price of bitcoin between $22,000 and $24,000 before the option expires on August 5.

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