bitcoin (btc) experienced a 16.5% correction between August. 15 and Aug. 19 as it tested the $20,800 support. While the drop is surprising, in reality, a price difference of $4,050 is relatively insignificant, especially when you factor in bitcoin’s 72% annualized volatility.
The volatility of the s&p 500 is currently 31%, which is significantly lower, but the index was down 9.1% between June 8 and June 13. Therefore, in comparative terms, the index of the main companies listed in the US. uu. faced a steeper move adjusted for historical risk metric.
Reading: Bitcoin options expiry time
Earlier this week, crypto investor sentiment worsened after weaker conditions in Chinese property markets forced the central bank to cut its five-year lending prime rate on Aug. 1. 21. furthermore, a goldman sachs investment bank strategist claimed that inflationary pressure would force the u.s. federal reserve to further tighten the economy, negatively impacting the s&p 500.
Regardless of the correlation between stocks and bitcoin, which is currently 80/100, investors tend to seek refuge in the US. uu. dollars and inflation-protected bonds when they fear a crisis or a market crash. this move is known as “flight to quality” and tends to add selling pressure in all risk markets, including cryptocurrencies.
See also: Cómo Trabajar con Bitcoin en El Salvador
Despite the best efforts of the bears, bitcoin has failed to break below the $20,800 support. This move explains why $1 billion monthly bitcoin options expire on August 1. 26 could benefit bulls despite recent 16.5% 5-day loss.
most bull bets are above $22,000
bitcoin’s sharp correction after failing to break the $25,000 resistance on Aug 1. 15 bulls surprised because only 12% of the calls (purchase) options for the monthly expiry have been placed above $22,000. therefore, bitcoin bears are better positioned even though they made fewer bets.
A broader view using the 1.25 call-to-put ratio shows more bullish bets because the call (buy) open interest stands at $560 million against the $450 million put (sell) options. Nevertheless, as Bitcoin currently stands below $22,000, most bullish bets will likely become worthless.
For example, if the price of bitcoin stays below $22,000 at 8:00 a.m. m. UTC on August 1. On February 26, only $34 million of these put options will be available. this difference occurs because the right to sell bitcoin below $22,000 is useless if it trades above that level at expiration.
bulls could make $160 million profit
Below are the four most likely scenarios based on current price action. the number of options contracts available on Aug. 26 for call (bull) and put (bear) instruments varies, depending on the expiration price. the imbalance in favor of each side constitutes the theoretical profit:
- Between $20,000 and $21,000: 1,100 call options vs. 8,200 put options. the net result favors the bears by $140 million.
- Between $21,000 and $22,000: 1,600 calls vs. 6,350 puts. the net result favors the bears by $100M.
- Between $22,000 and $24,000: 5,000 calls vs. 4,700 puts. the net result is balanced between bulls and bears.
- Between $24,000 and $25,000: 7,700 calls vs. 1,000 puts. the net result favors the bulls by $160 million.
This crude estimate considers call options used on bull bets and put options exclusively on neutral to bear trades. even so, this simplification ignores more complex investment strategies.
having $20,800 is critical, especially after the bulls were liquidated in the futures market
bitcoin bulls need to push the price above $22,000 on Aug 1st. 26 to balance the scales and avoid a possible loss of $140 million. however, bitcoin bulls had $210 million in leveraged long futures positions liquidated on August 2. 18, so they are less inclined to raise the price in the short term.
That said, the most likely scenario for Aug. 26 is the range from $22,000 to $24,000 that provides a balanced result between bulls and bears.
if the bears show some strength and btc misses the critical $20,800 support, the $140 mln loss on the monthly expiry will be the least of their problems. furthermore, the move would invalidate the previous low of $20,800 from July 26, effectively breaking a seven-week uptrend.
The views and opinions expressed herein are solely those of the 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.