Bitcoin lost the $50,000 mark, but derivatives data shows that there are a few reasons why bulls could march on the resistance level before Friday’s 2 billion BTC options expiry.
$2 billion worth of Bitcoin (BTC) options will expire on Friday, Aug. 27. Analysts believe that the recent price test of $50,000 was caused by strong buy (buy) option buying on Aug. 22.
Digital asset trading firm QCP Capital mentioned in its market update that an entity has been “consistently pushing (option) prices higher in the last few weeks.” This activity took place in the morning Asian trading session. It involved buying large quantities of bullish options, each in 100 BTC contracts.
It also notes that regulatory concerns are being exhausted in the short term as crypto-related decisions by the Senate Banking Committee or regulators are unlikely in 2021.
Bears could be analysing different data
The most recent “The Week On Chain”, report by blockchain analytics provider Glassnode contained some worrying data about Bitcoin on-chain activity. Such analysis found that the amount of entity-adjusted transactions has not responded to the ongoing bullish action.
Moreover, Decentrader, a crypto market-intelligence provider, highlighted insufficient trading volume during this recent move to push BTC’s price above $52,000.
Friday will be a crucial test at the $50,000 level as 4,372 BTC option contract contracts await the $218 Million decision.
Initial call-to put analysis shows that neutral-to bullish call instruments dominate, with 60% more open interest. Bulls may have been too optimistic as 68% of their wagers were placed at $50,000 or more.
91% of the put option will likely be worthless upon expiry
However, 91% have been placed below $46,000 to secure their protective options. If Bitcoin trades at or above this price, those neutral-to-bearish options will be worthless. Options expire at 8:00 UTC. This means that there will be some volatility ahead of the event.
These are the most likely scenarios based on current prices. The potential profit from expiry is the imbalance in favor of either side. Bullish strategies tend to use more calls (buy) options, while neutral-to bearish trades typically use protective puts.
- Below $45,000 4,040 calls vs. 2,500 puts. The net result is $69 million more for neutral-to-bullish instruments.
- Above $46,0006,500 calls vs. 1,300 puts. The net result favors neutral-to-bullish instruments by $239 million
- Above $48,0007,400 calls vs. 420 puts. This net result gives neutral-to-bullish instruments a $335million advantage.
- Above $50,00012,000 calls vs. 35 puts. This net result gives neutral-to-bullish instruments a $600million advantage.
Based on the expiry price, the above data will show how many contracts are available Friday. It’s impossible to determine the net result of every market participant because some investors may be trading more complicated strategies using both protective puts and calls.
These two opposing forces will be at the forefront of their efforts, while bears will attempt to limit the damage. Bulls control Friday’s expiry and have enough incentive to defend $48,000 and try to make a bigger gain by pushing the price higher than $50,000.
Meanwhile, bears should concentrate on the September expiry, although keeping in mind that El Salvador is expected to introduce Bitcoin as legal tender next month. The infrastructure for supporting a state-issued Bitcoin wallet, Chivo, is also being built by the country.