Bitcoin (BTC) has been trading in a bearish pattern since the strong deviation of $ 53,000 on September 7, and the elimination of $ 3.4 billion futures contracts, along with a Chinese cryptocurrency trading ban, appears to have seriously impacted trader sentiment.
In addition to the negative sentiment, major crypto exchanges such as Binance and Huobi have suspended some services in mainland China, and some of the largest Ethereum mining pools, such as Sparkpool and BeePool, have been forced to shut down completely.
Bitcoin price in USD on Coinbase. Source: TradingView
Based on the table above, you can see why buyers place 80% of their bids for $ 44,000 or more. However, the past two weeks have certainly resulted in call (buy) options quickly losing their value.
On September 25, the People’s Bank of China (PBoC) announced a nationwide ban on crypto companies, barring them from providing financial transactions and services to market participants. This news resulted in an 8% drop in the bitcoin price along with a wider fall in the cryptocurrency.
This opinion was confirmed after Tesla CEO Elon Musk spoke out in support of cryptocurrencies at the Code conference in California.
“I don’t think it is possible to destroy cryptocurrencies, but governments can slow development.”
If we were in a neutral or bullish market, these comments would likely reverse the negative trend. For example, on July 21, Elon Musk stated that Bitcoin has already reached the level of renewable energy. As a result, the bitcoin price, which had previously dropped 12% in ten days, changed the course of the draw and rose 35% over the next ten days.
The expiration of October 1 will be a test of strength for the bulls, because any price below $ 42,000 would mean a carnage with an absolute predominance of put options (sells).
On October 1st, bitcoin options gain open interest. Source: Bybt.com
The initially neutral or bullish $ 285 million dominated the weekly maturity by 21% compared to the $ 320 million (sell) options.
The 1.21 to buy ratio is confusing, however, as bulls’ over-optimism could wipe out most of their games if the bitcoin price stays below $ 43,000 at 08:00 UTC on Friday.
After all, what good is a website if it blends in with everything else?
The bears were surprised too
Sixty-six percent of put options are placed, whereby the buyer has the right to sell bitcoin at a predetermined price of $ 42,000 or less. These neutral or bearish instruments will be useless if Bitcoin trades above this price on Friday morning.
Here are the four most likely scenarios based on the current price level. An imbalance in favor of both sides represents a potential churn benefit.
The data shows the number of contracts that will be available on Friday, depending on the expiration price.
From $ 40,000 to $ 41,000: 110 calls for 4,470 points. The net result is $ 175 million in favor of the sandbox (gadgets).
$ 41,000 to $ 43,000: 640 calls for 4,000 points. The net profit is still in favor of the bears at $ 140 million.
Between $ 43,000 and $ 45,000: 1,780 calls for 2,070 pips. The result is a balance between bears and bulls.
Above $ 45,000: 2,530 calls for 1,090 points. The net result is in favor of the $ 65 million bulls.
This approximation applies to buy (buy) options used in bullish strategies, and put (call) options exclusively in neutral and bearish trades. Unfortunately, in real life, things are not so simple, because more complex investment strategies can be implemented.
For example, a trader could sell a put option and actually receive a positive share of bitcoins above a certain price. Thus, there is no easy way to assess this effect, so the simple analysis above is a good guess.
For now, the bears have full control over the October 1 expiration date and have good reason to keep pushing the price below $ 43,000.
Unless there is unexpected buying pressure over the next 12 hours, the amount of capital the bulls will need to get the market above the $ 45,000 threshold seems overwhelming and unwarranted.
On the other hand, the bears need a negative price swing of 5%, which will push BTC below $ 41,000 in order to increase its advance by $ 35 million. So this step also shows little return on the effort required.
The bull’s only hope is to deliver unexpectedly positive bitcoin price news before October 1 at 8:00 UTC. If reasonable action needs to be taken, it will most likely happen on weekends when the traffic is less active.