The $20,000 resistance was stronger than expected this week, and even after Bitcoin (BTC) price rejected this level on September 27, BTC bulls still had reason not to give up.
According to the four-month descending triangle, as long as the $18,500 support holds, Bitcoin price must decide whether the downtrend will continue until the end of October.
Bitcoin/US dollar price index for one day. Source: Trading View
Bitcoin bulls may be frustrated by lackluster price action as BTC repeatedly failed to break above $20,000, but macroeconomic developments could lead to a rally sooner than expected.
Some analysts point to the UK’s unexpected intervention in the bond market as a turning point in the government’s creditworthiness. On September 28, the Bank of England announced that it would start temporary purchases of long-term bonds to reassure investors after the sharp rise in interest rates, the highest level since 1957.
To justify the intervention, the Bank of England said that “if the turmoil in this market continues or worsens, there will be a significant risk to financial stability in the UK”. This action completely contradicts a promise to sell $85 billion of bonds within 12 months. In short, the government’s credibility is being questioned and as a result investors are demanding much higher returns to keep the UK in debt.
The impact of government efforts to curb inflation is starting to weigh on corporate earnings, and according to Bloomberg, Apple recently backed plans to boost production on September 27. 42 objects, according to MWPVL International Inc.
This is why the $2.2 billion monthly Bitcoin (BTC) options that expire on September 30 will put significant price pressure on the bulls, although the bears look a little better as Bitcoin struggles to hold the $19,000.
Most of the bullish bets were placed above $21,000.
Bitcoin’s rally against the $22,500 resistance on September 12 gave the bulls a signal to expect a continuation of the uptrend. This becomes apparent as only 15% of call options were placed on September 30th at $21,000 or below. This means that bitcoin bears are better prepared for the expiration of $2.2 billion in monthly options.
Bitcoin options collect open interest on September 30th. Source: CoinGlass
The broader view using a buy-to-buy ratio of 1.49 shows an unbalanced position with $1.26 billion open interest bullish calls against $850 million worth of call options. However, with bitcoin currently valued at around $19,000, the bears are in a dominant position.
If the bitcoin price remains below $20,000 at 08:00 UTC on September 30, these call (call) options will only be available for $37 million. This difference arises because the right to buy Bitcoin at $20,000 or $21,000 is worthless if it is trading below this level at expiration.
Bears can make $350 million in profit
Below are the four most likely scenarios based on current price action. The number of call (bullish) and put (bear) options available on September 30 varies depending on the expiration price. The imbalance in favor of each side is the theoretical profit:
$18,000 to $19,000: 500 calls for 19,800 spots. The net result in favor of the Bears is $350 million.
$19,000 to $20,000: 2,000 calls for 16,000 patches. The net result favors a downside bet of $270 million.
$20,000 to $21,000: 5,900 calls for 12,700 spots. The net result in favor of the Bears is $135 million.
$21,000 to $22,000: 10,100 calls for 11,300 spots. The net result is balanced between bulls and bears.
This estimate takes into account bullish calls and purely bearish positions. 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 were not so lucky as the head of the US Federal Reserve called for regulation of “crypto activity” on September 27, warning of “very serious structural problems related to a lack of transparency”.
If the bears take control once the monthly options expire in September, this will likely provide the firepower to reduce the bitcoin price further.