Bitcoin Holds $19K But Volatility Expected As Friday’s $2.2B BTC Options Expiration Approaches

This week’s $20,000 resistance is proving to be stronger than expected, and even after Bitcoin price was rejected at this level on September 27, BTC bulls still have reasons not to give up.

According to the 4-month descending triangle, Bitcoin price has until the end of October to determine whether the downtrend will continue as long as the $18,500 support holds.

Bitcoin/USD 1-day price index. Source: TradingView

Bitcoin bulls may have been disappointed by the lackluster price performance as BTC failed to break above $20,000 on several occasions, but macroeconomic events may trigger a rally sooner than expected.

Some analysts point to an unexpected intervention in the UK bond market as a tipping point for the government’s debt credibility. On September 28, the Bank of England announced it would start buying long-term bonds temporarily to calm investors after a sharp rise in yields, the highest since 1957.

To justify intervention, the Bank of England said, “if dysfunction in this market persists or worsens, there would be a significant risk to UK financial stability”. The move is in stark contrast to a promise to sell $85 billion in bonds over 12 months. In short, the government’s credibility is being called into question, and as a result, investors are demanding higher yields to hold UK debt.

The effects of the government’s efforts to curb inflation are beginning to dampen corporate earnings, and Apple recently abandoned plans to increase production on September 27, according to Bloomberg. Amazon, the world’s largest retailer, is also believed to have halted plans to open 42 stores. facilities, MWPVL International Inc.

Therefore, $2.2 billion worth of Bitcoin (BTC) monthly options will expire on September 30, putting a lot of price pressure on the bulls, even if the bears look a little better positioned as Bitcoin tries to hold $19,000.

Most bullish bets are placed above $21,000

Bitcoin’s rally to $22,500 resistance on September 12 signaled bulls to expect a continuation of the uptrend. This is evident because only 15% of call (buy) options for September 30 were placed at $21,000 or less. This means that Bitcoin bears are better positioned for the expiration of $2.2 billion in monthly options.

Bitcoin options combine open interest for September 30. Source: CoinGlass

A broader view using the call-to-put ratio of 1.49 shows a skewed situation with $1.26 billion worth of bullish bets (calls) open interest versus $850 million put (put) options. Nevertheless, Bitcoin is currently near $19,000 and the bears have a dominant position.

If the bitcoin price remains below $20,000 at 8:00 a.m. on September 30, these call (call) options will be worth only $37 million. This difference occurs because if bitcoin trades below this level at expiration, there is no benefit from the right to buy at $20,000 or $21,000.

The Bears could earn $350 million

Below are the four most likely scenarios based on current price action. The number of option contracts available for call (bull) and put (bear) instruments on September 30 varies depending on the expiration price. The imbalance in favor of each party constitutes the theoretical profit:

  • Between $18,000 and $19,000: 500 calls and 19,800 calls. The net result is $350 million in favor of the bears.
  • Between $19,000 and $20,000: 2000 calls and 16000 calls. The net result favors the low stakes at $270 million.
  • Between $20,000 and $21,000: 5,900 calls and 12,700 calls. The net result is $135 million in favor of the bears.
  • Between $21,000 and $22,000: 10,100 calls and 11,300 calls. The net result is balanced between bulls and bears.

This crude estimate takes into account call options used in bull bets and put options in neutral-to-bear trades only. However, this oversimplification ignores more complex investment strategies.

Regulatory pressure could make things difficult for Bitcoin bulls

Bitcoin bulls need to push the price above $21,000 on September 30 to balance the scales and avoid a potential loss of $350 million. However, Bitcoin bulls seem out of luck as the chairman of the US Federal Reserve called for regulation of “crypto activities” on September 27, warning of “very significant structural problems with lack of transparency”.

If the monthly options expiration in September is dominated by the bears, this will likely add strength to further bets that the Bitcoin price will fall. But at this point, there are no signs that the bulls can turn the tables and escape the pressure of the 4-month descending triangle.