Bitcoin faced a 16.5% drop between August 15 and August 19, reaching the $20,800 support level. While this decline may seem significant, a $4,050 price variation is relatively minor when considering Bitcoin’s 72% annualized volatility.
On the other hand, the S&P 500 has a volatility of 31%, much lower than Bitcoin’s, yet it experienced a 9.1% decrease in value between June 8 and June 13. This comparison shows that the U.S.-listed companies’ index faced a more substantial movement when adjusted for historical risk metrics.
Recently, concerns in the Chinese real estate market led to the country’s central bank lowering its five-year loan prime rate on August 21, causing a negative impact on crypto investors’ sentiment. Additionally, a Goldman Sachs strategist mentioned that inflation pressures might prompt the U.S. Federal Reserve to tighten monetary policies, affecting the S&P 500 negatively.
Despite the strong correlation between stocks and Bitcoin at 80/100, investors tend to shift towards the U.S. dollar and inflation-protected bonds during times of crisis or market downturns. This flight to quality typically results in selling pressures across all risk markets, including cryptocurrencies.
Even with downward pressure from bears, Bitcoin has managed to hold above the $20,800 support level. This trend indicates a possible benefit for bulls in the upcoming $1 billion Bitcoin options expiry on August 26, despite the recent 16.5% loss over five days.
Major bullish bets are concentrated above $22,000
Following its drop after failing to surpass the $25,000 resistance on August 15, Bitcoin surprised bullish investors as only 12% of the monthly call options are positioned above $22,000. Although the number of bearish bets is lower, they are in a more advantageous position.
Analyzing the 1.25 call-to-put ratio reveals a higher number of bullish bets, with $560 million in call open interest compared to $450 million in put options. However, since Bitcoin is currently below $22,000, most bullish bets are at risk of becoming worthless.
For example, if Bitcoin remains below $22,000 by 8:00 am UTC on August 26, only $34 million worth of put options will retain value. This situation occurs because there is no benefit in selling Bitcoin below $22,000 if it trades higher upon expiry.
Bulls may secure a $160 million profit
Considering the current pricing dynamics, four possible scenarios are outlined based on the number of options contracts available for call and put instruments on August 26. Here’s the breakdown of the net balance favoring each side across different price ranges:
- Between $20,000 and $21,000: 1,100 calls vs. 8,200 puts. Bears are favored with a net result of $140 million.
- Between $21,000 and $22,000: 1,600 calls vs. 6,350 puts. Bears hold an advantage with a net result of $100 million.
- Between $22,000 and $24,000: 5,000 calls vs. 4,700 puts. The outcomes are balanced between bulls and bears.
- Between $24,000 and $25,000: 7,700 calls vs. 1,000 puts. Bulls are favored with a net result of $160 million.
While this estimation simplifies the impact of call and put options on bullish and neutral-to-bearish trades, it overlooks more complex investment strategies.
Significance of Holding $20,800, particularly after bullish liquidations in the futures market
Bitcoin bulls aim to push the price above $22,000 to avoid a potential $140 million loss on August 26. However, the liquidation of $210 million leveraged long futures positions on August 18 has made bullish investors hesitant to boost prices in the short term.
The likely scenario for August 26 revolves around the $22,000-to-$24,000 range, offering a balance between bulls and bears. If bears gain momentum and Bitcoin falls below the crucial $20,800 support, the $140 million loss in monthly expiry will be the least of concerns. Furthermore, breaching the prior $20,800 low on July 26 would disrupt a seven-week ascending trend.
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