The $20,000 resistance this week proved to be stronger than expected and even after Bitcoin price rejected this level on September 27, BTC bulls still have reasons not to give up.
According to the 4-month descending triangle, as long as the $18,500 support is in place, bitcoin price has until late October to determine if the downtrend continues.
Bitcoin/US dollar price index for one day. Source: TradingView
Bitcoin bulls may have been disappointed by the lackluster price performance as BTC failed multiple times to break above $20,000, but macroeconomic events could trigger a rally sooner than expected.
Some analysts point to the UK’s unexpected intervention in the bond market as the breaking point in the government’s debt credibility. On September 28, the Bank of England announced that it would begin the temporary purchase of long-term bonds to calm investors after the sharp increase in yield, the highest since 1957.
To justify the intervention, the Bank of England stated, “There has been a dysfunction in this market that if it continues or worsens, there will be a material risk to the UK’s financial stability.” Taking this action completely goes against a promise to sell $85 billion worth of bond holdings within 12 months. In short, the government’s credibility is being questioned and as a result investors are demanding much higher returns for carrying UK debt.
The impact of government efforts to curb inflation has begun to dampen corporate revenues, and according to Bloomberg, Apple recently backed off plans to ramp up production on September 27. Amazon, the world’s largest retailer, is also estimated to have closed plans to open 42 facilities, according to MWPVL International Inc.
This is why the $2.2 billion monthly Bitcoin (BTC) options expiration on September 30th will put a lot of price pressure on the bulls, even though the bears look a bit better as Bitcoin tries to hold $19,000.
Most of the bullish bets were placed above $21,000
Bitcoin’s rally towards the $22,500 resistance on September 12 gave the bulls a signal to expect a continuation of the uptrend. This becomes clear because only 15% of call (buy) options on September 30th were placed at or below $21,000. This means that Bitcoin bears are in a better position to expire $2.2 billion in monthly options.
Bitcoin options collect open interest on September 30th. Source: CoinGlass
The broader view using a buy/buy ratio of 1.49 shows a skewed position with open bets (calls) at $1.26 billion versus $850 million put (call) options. However, since Bitcoin is currently standing near $19,000 and the bears have a dominant position.
If the bitcoin price remains below $20,000 at 8:00 AM UTC on September 30, only $37 million worth of call (buy) options will be available. This difference occurs because there is no use in the right to buy Bitcoin at $20,000 or $21,000 if it is trading below that level at expiration.
Bears can win $350 million
Below are the four most likely scenarios based on current price action. The number of options contracts available on September 30th for the buy (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical profit:
Between $18,000 and $19,000: 500 calls for $19,800. The net result favors the Bears by $350 million.
Between $19,000 and $20,000: 2,000 calls for 16,000 puts. The net result favors a downside bet of $270 million.
Between $20,000 and $21,000: 5,900 calls for 12,700 points. The net result favors the Bears with $135 million.
Between $21,000 and $22,000: 10,100 calls for 11,300 points. The net result is balanced between bulls and bears.
This crude estimate takes into account buying options used in bullish bets and selling options exclusively in neutral to bearish trades. However, this oversimplification overlooks more complex investment strategies.
Regulatory pressure can complicate matters for Bitcoin bulls
Bitcoin bulls need to push the price above $21,000 on September 30th to balance the scales and avoid a potential loss of $350 million. However, it appears that the Bitcoin bulls have not been so lucky since the US Federal Reserve chairman called for regulation of “crypto activities” on September 27, alerting “very important structural issues related to a lack of transparency.”
If the bears dominate the September monthly options expiration, this will likely add firepower to more bets on the downside to the bitcoin price. But, at the moment, there is no indication that the bulls can turn the tables and avoid pressure from the 4-month descending triangle.
