The upcoming $1.9 billion Bitcoin monthly options expiry on August 25th is expected to have a significant impact on the market. It will determine whether the support level of $26,000 for Bitcoin can hold. While many have attributed the recent sell-off in the cryptocurrency market to the delay in the approval of spot Bitcoin exchange-traded funds by the United States Securities and Exchange Commission (SEC), there are also broader macroeconomic factors at play.
One of these factors is the Federal Reserve’s efforts to curb inflation. If these measures are successful, it is likely that the U.S. dollar will continue to strengthen. In fact, on August 22nd, the U.S. Dollar Index (DXY), which measures the dollar against other currencies, reached its highest level in 76 days. This could have implications for the price of Bitcoin.
For Bitcoin bulls to prevent a potential loss of $380 million due to the options expiry, they must ensure that Bitcoin’s price remains above $27,000 by August 25th. However, there are challenges ahead for cryptocurrency bulls in the form of regulatory actions. Two of the largest cryptocurrency exchanges, Binance and Coinbase, are currently facing lawsuits from the SEC. Additionally, Ripple’s initial victory against the SEC is now under appeal. These regulatory challenges add uncertainty to the cryptocurrency market.
Bitstamp, another major cryptocurrency exchange, recently announced that it would halt staking services for U.S.-based clients. This decision is related to the ongoing regulatory concerns regarding the classification of Ether (ETH) as a commodity or a security. Furthermore, Binance suspended its crypto debit card offerings in Latin America and the Middle East, following allegations of limitations on euro withdrawals and deposits in Europe. These developments highlight the regulatory complexities faced by cryptocurrency exchanges.
Recent data shows that bullish investors in Bitcoin may have been excessively optimistic about the price. The open interest for the options expiry on August 25th is currently at $1.9 billion. However, it is expected that the final amount will be lower due to some traders anticipating higher price levels, such as $29,000. The unexpected 12% correction in Bitcoin’s price from August 14th to August 19th caught many bullish investors off guard.
The imbalance between call (buy) and put (sell) options reflects this optimism. The current put-to-call ratio stands at 0.56, indicating a higher interest in put options. This means that there is $1.2 billion in call open interest compared to $685 million in put options. However, if Bitcoin’s price remains near $26,500 on August 25th, only $35 million worth of call options will be available. This is because the right to buy Bitcoin at higher levels becomes worthless if the price remains below those levels on expiry.
Based on the current price action, there are four likely scenarios for the options expiry. In the $25,000 to $26,000 range, there are 100 calls versus 15,100 puts, favoring the put instruments by $380 million. In the $26,000 to $27,000 range, there are 1,400 calls versus 11,000 puts, favoring the put instruments by $250 million. In the $27,000 to $28,000 range, there are 4,000 calls versus 8,400 puts, favoring the put instruments by $110 million. And finally, in the $28,000 to $29,000 range, there are 6,000 calls versus 5,300 puts, resulting in a balanced outcome.
To level the playing field before the expiry, bulls would need to achieve a 6% price increase from $26,400. However, bears only require a 2% correction below $26,000 to secure a $380 million advantage. Given Bitcoin’s recent drops below the $26,000 support level, it would not be surprising if this level is tested again before the options expiry.
Considering the current regulatory landscape and the significant options expiry, there is minimal incentive for Bitcoin bulls to reverse the bearish momentum in the near term. The market will closely watch how Bitcoin performs in the coming days to see if it can hold the support level and avoid further downside.
Disclaimer: This article is for general information purposes only and should not be considered legal or investment advice. The views expressed here are the author’s alone and do not necessarily reflect the views of Cointelegraph.
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