Bitcoin (BTC) skilled a 16.5% correction between Aug. 15 and Aug. 19 because it examined the $20,800 help. While the drop is startling, in actuality, a $4,050 value distinction is comparatively insignificant, particularly when one accounts for Bitcoin’s 72% annualized volatility.
Currently, the S&P 500’s volatility stands at 31%, which is considerably decrease, but the index traded down 9.1% between June 8 and June 13. So, comparatively talking, the index of main U.S.-listed corporations confronted a extra abrupt motion adjusted for the historic threat metric.
At the beginning of this week, crypto traders’ sentiment worsened after weaker situations in Chinese actual property markets pressured the central financial institution to cut back its five-year mortgage prime fee on Aug. 21. Moreover, a Goldman Sachs funding financial institution strategist acknowledged that inflationary strain would power the U.S. Federal Reserve to additional tighten the financial system, which negatively impacts the S&P 500.
Regardless of the correlation between shares and Bitcoin, which is at present operating at 80/100, traders have a tendency to hunt shelter in the U.S. greenback and inflation-protected bonds once they worry a disaster or market crash. This motion is named a “flight to quality” and tends so as to add promoting strain on all threat markets, together with cryptocurrencies.
Despite the bears’ greatest efforts, Bitcoin has not been capable of break beneath the $20,800 help. This motion explains why the $1 billion Bitcoin month-to-month options expiry on Aug. 26 may benefit bulls regardless of the current 16.5% loss in 5 days.
Most bullish bets are above $22,000
Bitcoin’s steep correction after failing to interrupt the $25,000 resistance on Aug. 15 shocked bulls as a result of solely 12% of the decision (purchase) options for the month-to-month expiry have been positioned above $22,000. Thus, Bitcoin bears are higher positioned although they positioned fewer bets.
Bitcoin options mixture open curiosity for Aug. 26. Source: CoinGlass
A broader view utilizing the 1.25 call-to-put ratio exhibits extra bullish bets as a result of the decision (purchase) open curiosity stands at $560 million towards the $450 million put (promote) options. Nevertheless, as Bitcoin at present stands beneath $22,000, most bullish bets will possible develop into nugatory.
For occasion, if Bitcoin’s value stays beneath $22,000 at 8:00 am UTC on Aug. 26, solely $34 million price of those put (promote) options will be out there. This distinction occurs as a result of there isn’t a use in the correct to promote Bitcoin beneath $22,000 if it trades above that degree on expiry.
Bulls may safe a $160 million revenue
Below are the 4 more than likely situations primarily based on the present value motion. The variety of options contracts out there on Aug. 26 for name (bull) and put (bear) devices varies, relying on the expiry value. The imbalance favoring all sides constitutes the theoretical revenue:
- Between $20,000 and $21,000: 1,100 calls vs. 8,200 places. The internet outcome favors bears by $140 million.
- Between $21,000 and $22,000: 1,600 calls vs. 6,350 places. The internet outcome favors bears by $100 million.
- Between $22,000 and $24,000: 5,000 calls vs. 4,700 places. The internet result’s balanced between bulls and bears.
- Between $24,000 and $25,000: 7,700 calls vs. 1,000 places. The internet outcome favors bulls by $160 million.
This crude estimate considers the decision options used in bullish bets and the put options solely in neutral-to-bearish trades. Even so, this oversimplification disregards extra advanced funding methods.
Holding $20,800 is critical, particularly after bulls had been liquidated in futures market
Bitcoin bulls have to push the worth above $22,000 on Aug. 26 to steadiness the scales and keep away from a possible $140 million loss. However, Bitcoin bulls had $210 million price of leverage lengthy futures positions liquidated on Aug. 18, so they’re much less inclined to push the worth greater in the brief time period.
With that stated, essentially the most possible state of affairs for Aug. 26 is the $22,000-to-$24,000 vary offering a balanced end result between bulls and bears.
If bears present some energy and BTC loses the critical $20,800 help, the $140 million loss in the month-to-month expiry will be the least of their issues. In addition, the transfer would invalidate the earlier $20,800 low on July 26, successfully breaking a seven-week-long ascending pattern.
The views and opinions expressed listed below are solely these of the writer and don’t essentially mirror the views of Cointelegraph. Every funding and buying and selling transfer entails threat. You ought to conduct your individual analysis when making a call.