Bitcoin (BTC) briefly broke above $25,000 on August 15, but the excitement lasted less than an hour and was followed by a 5% correction in the next five hours. The resistance level proved to be stronger than expected but may have given false hope to the bulls on the expiration of the $335 million weekly options.
Transient investor optimism returned to the sellers market on August 17 after BTC dumped and tested the $23,300 support. The negative move occurred hours before the release of the FOMC meeting minutes from its July meeting. Investors are expecting some ideas about whether the Federal Reserve will continue to raise interest rates.
The flow of negative news accelerated on August 16 after a US federal court authorized the US Internal Revenue Service (IRS) to compel cryptocurrency broker SFOX to disclose the transactions and identities of US taxpayers. The same strategy was used to obtain information from Circle, Coinbase, and Kraken between 2018 and 2021.
This move explains why the $25,000-plus Bitcoin price bet on August 19 was a certainty two days earlier, and that should have spurred bullish bets.
Bears did not expect BTC to move above $24,000
The open interest for the August 19th options expiration is $335 million, but the actual number will be lower given that the bears were overly optimistic. These traders may have been scammed by the short-term dumped to $22,700 on August 10 because their bets on August options expiration extend to $15,000.
Bitcoin options collect open interest on August 19. Source: Coinglass
The buy to call ratio of 1.29 shows the difference between the open interest on call (buy) of $188 million and put (call) of $147 million. Currently, Bitcoin is standing near $23,300, which means that most bullish bets are likely to become worthless.
If the Bitcoin price moves below $23,000 at 8:00 AM UTC on August 19, only $1 million worth of call (buy) options will be available. This difference occurs because the right to buy Bitcoin at $23,000 is useless if BTC is trading below this level at expiration.
There is still hope for the bulls, but $25,000 seems a long way off
Here are the three most likely scenarios based on current price action. The number of options contracts available on August 19 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 $21,000 and $23,000: 30 calls for 2,770 puts. The net result favors put (Bear) by $60 million.
Between $23,000 and $25,000: 940 calls for 1,360 points. The net result is balanced between bulls and bears.
Between $25,000 and $26,000: 3,330 calls for 100 puts. The net result favors buy-in (bull) instruments by $80 million.
This crude estimate takes into account the buy options used in bearish bets and the call options exclusively in neutral to bullish trades. However, this oversimplification overlooks more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to bitcoin above a certain price, but unfortunately, there is no easy way to estimate this effect.
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Bears will try to stabilize Bitcoin at less than $23,000
Bitcoin bulls need to push the price above $25,000 on August 19 to make a profit of $80 million. On the other hand, the best case scenario for the bears would require pressure below $23,000 to maximize gains.
Bitcoin bulls earned $144 million in long-leveraged positions that were liquidated on August 16, so they should have less margin to push the price higher. With this said, bears have the upper hand in suppressing BTC below $23,000 before the August 19 options expiration.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.
