The crucial factor in determining the sustainability of the $26,000 support level is the approaching monthly expiration of $1.9 Billion worth of Bitcoin options on August 25, 2023. The recent drop in the cryptocurrency market could be attributed to the SEC’s postponement of a verdict regarding Bitcoin exchange-traded funds, along with broader macroeconomic considerations.
Should the Federal Reserve succeed in its attempts to control inflation, it’s likely that everyone will continue to see a strengthening of the U.S. dollar. This was illustrated by the U.S. Dollar Index (DXY), which gauges the dollar’s performance against other currencies, hitting its highest point in 76 days on August 22nd.
To avert a potential loss of $380 Million resulting from the monthly expiry of Bitcoin options, supporters of Bitcoin need to ensure that its price remains above $27,000 by August 25th.
The open interest for the options expiry on August 25th is currently at $1.9 Billion. However, it’s anticipated that the final sum will be lower, as some traders anticipate price levels surpassing $29,000 or even higher.
The sudden 12% decline in Bitcoin’s price between August 14th and August 19th caught bullish investors by surprise, which is clearly indicated by the chart depicting Bitcoin options interest.
The quantity of options contracts offered on August 25th for call and put instruments differs based on the expiration price. The disparity in favor of one side over the other determines the theoretical profit.
What To Expect in the Current Scenario?
This basic calculation doesn’t consider more intricate investment tactics. For example, a trader might have sold a call option, essentially gaining inverse exposure to Bitcoin beyond a certain price. Regrettably, determining this impact isn’t straightforward.
In the price range of $25,000 to $26,000, there are 100 call options compared to 15,100 put options. This leads to a net preference for put instruments amounting to $380 Million.
Between $26,000 and $27,000, there are 1,400 call options versus 11,000 put options, resulting in a net preference for put instruments by $250 Million.
Within the range of $27,000 to $28,000, there are 4,000 call options and 8,400 put options. The net preference for put instruments is $110 Million.
For the price range of $28,000 to $29,000, there are 6,000 call options and 5,300 put options, resulting in a balanced net outcome between call and put options.
It’s important to highlight that in order for the bullish trend to equalize the situation before the monthly expiry, they need to attain a 6% price rise starting from $26,400. In contrast, the bears simply need a minor 2% downturn below $26,000 to secure a $380 million advantage on August 25th.
Considering the consistent decline of Bitcoin below the $26,000 support level between August 21st and August 23rd, it wouldn’t be unexpected for this level to be challenged once more before the options expiry.
Additionally, given the existing regulatory environment for cryptocurrencies, there is limited motivation for Bitcoin bulls to reverse the current bearish trend after the conclusion of the $1.9 Billion monthly options expiry.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/08/25/bitcoin-options-expiry-at-26k-sustainability-and-market-impact/