Deribit’s Dubai Unit Receives ‘Conditional’ Virtual Asset Service Provider License

April 3, 2024 Bitcoin.com

Bitcoin derivatives data points to traders’ $50K BTC price target

December 12, 2023 Coin Telegraph

<div>Bitcoin derivatives data points to traders' K BTC price target</div>

Bitcoin bulls expectations of $50,000 and higher remain feasible according to BTC futures and options markets.

Bitcoin (BTC) price continues to trade below its 2023 high, a sign that investors may have underestimated the strength of the $44,000 resistance. Even as BTC price trades below $42,000, it doesn't necessarily mean that reaching $50,000 and beyond is no longer possible. In fact, quite the opposite seems more likely to occur. Looking at Bitcoin derivatives metrics, it is clear that traders ignored the 6.9% drop and remained optimistic. However, is this optimism enough to justify further gains?

The $127 million liquidation of leveraged long Bitcoin futures on Dec. 11 may seem significant in absolute terms, but it represents less than 1% of the total open interest – the value of all outstanding contracts. Nevertheless, it's undeniable that the liquidation engine triggered a 7% correction in less than 20 minutes.

On one hand, one could argue that derivatives markets played a crucial role in the recent negative price movement. However, this analysis overlooks the fact that after hitting a low of $40,200 on Dec. 11, Bitcoin's price increased by 4.2% in the following six trading hours. In essence, the impact of forceful liquidation orders had dissipated long ago, disproving the notion of a crash solely driven by futures markets.

Bitcoin options data shows whales betting big — Will $50K BTC come in January?

December 7, 2023 Coin Telegraph

Bitcoin derivatives traders target $40K BTC price now that Binance is resolved

November 22, 2023 Coin Telegraph

Binance

BTC futures and options held firm despite a wave of negative news, and data shows traders targeting $40,000.

The cryptocurrency market recently experienced events that were previously expected to present a severe negative price impact, and yet, Bitcoin (BTC) trades near $37,000 on Nov. 22, which is essentially flat from three days prior.

Such performance was utterly unexpected given the relevance of Binance’s plea deal on Nov. 21 with the United States Authorities for violating laws involving money laundering and terror financing.

Bearish news has had limited impact on Bitcoin price

One might argue that entities have been manipulating Bitcoin’s price to avoid contagion, possibly involving the issuing of unbacked stablecoins–especially those with direct ties to the exchanges suffering from the regulatory pressure. Thus, to identify whether investors became highly risk-averse one should analyze Bitcoin derivatives instead of focusing solely on the current price levels.

The U.S. government filed indictments against Binance and Changpeng "CZ" Zhao in Washington state on Nov. 14, but the documents were unsealed on Nov. 21. After admitting the offenses, CZ stepped away from Binance management as part of the deal. Penalties totaled over $4 billion, including fines imposed on CZ personally. The news triggered a mere $50 million in BTC leverage long futures contracts after Bitcoin’s price momentarily traded down to $35,600.

It is worth noting that on Nov. 20 the United States Securities and Exchange Commission (SEC) sued Kraken exchange, alleging it commingled customer funds and failed to register with the regulator as a securities broker, dealer and clearing agency. Additionally, the complaint claimed Kraken paid for operational expenses directly from accounts containing customer assets. However, Kraken said the SEC’s commingling accusations were previously earned fees, so essentially their proprietary assets.

Another potentially disastrous tidbit of news came from Mt. Gox, a now-defunct Bitcoin exchange that lost 850,000 BTC to a hack in 2014. Nobuaki Kobayashi, the Mt. Gox trustee announced on Nov. 21 the redemption of $47 million in trust assets and reportedly planned to start the first cash repayments to creditors in 2023. Even though there was no information regarding the sale of Bitcoin assets, investors speculated that this final milestone is closer than ever.

One will find posts on social networks from experienced traders and analysts that anticipated a crypto market crash in case Binance were to be indicted by the DoJ. Some examples are listed below, and it is safe to say such a theory was almost a consensus among investors.

ETF denied, slow bleed is most likely, with a switch to hard crash if DOJ charges are unsealed soon against Binance.
— Parrot Capital (@ParrotCapital) August 26, 2023

I do not believe in coincidences. The Universe is rarely so lazy.

Expecting ETFs to be rejected and DoJ to drop the hammer on Binance crushing bulls dreams for 2023.
— McKenna (@Crypto_McKenna) July 31, 2023

Notice how McKeena predicted that Binance would be indicted by the DoJ and further added that the ongoing Bitcoin spot exchange-traded (ETF) fund applications will be denied by the SEC. But, as counterintuitive as it might sound, Binance going fully compliant increases the odds of the spot ETF approval. This is because it greatly weakens the SEC’s main argument for previous denials, namely the excessive volume market share on unregulated exchanges.

Nothing concrete came out from the spot Bitcoin ETF in regards to recent regulatory actions, but the amends to multiple proposals is a hint of a healthy discussion with the SEC.

Bitcoin derivatives display resilience

To confirm if the Bitcoin price resilience aligns with professional investors' risk assessment, one should analyze BTC futures and options metrics. For instance, traders could have rushed to hedge their positions, which doesn't pressure the spot markets, but vastly impacts BTC futures premium and options pricing.

*Bitcoin 3-month futures premium. Source: Laevitas.ch*

The price of Bitcoin monthly futures contracts tend to differ from regular spot exchanges since participants demand more money to delay the settlement. That’s not exclusive to cryptocurrencies, and in a neutral market it should stand near an annualized 5% rate.

Notice how Bitcoin futures currently holds an 8% premium, which is an indication of excessive demand for leverage longs, but far from excessive. This level is lower than the 11.5% seen in mid November, but is quite positive given the recent regulatory newsflow.

To confirm if Bitcoin derivatives did not experience a huge inflow of hedge operations, one needs to analyze BTC option markets as well. The 25% delta skew is a telling sign when arbitrage desks and market makers overcharge for upside or downside protection.

When traders anticipate a drop in Bitcoin’s price, the delta 25% skew tends to rise above 7%, while periods of excitement typically see it dip below negative 7%.

*Bitcoin options 25% delta skew. Source: Laevitas.ch*

As displayed above, the options 25% delta skew indicates optimism for the past 4 weeks as the put (sell) options have been trading at a discount when compared with similar call (buy) options. More importantly, the recent news flow did not change professional traders’ appetite for hedging strategies.

Overall, there's no doubt that the impact of regulatory actions and the potential sell pressure from Mt Gox caught the market in a great mood given the derivatives indicators.

Additionally, the liquidation of $70 million leverage BTC longs reduced the pressure from future negative price oscillations, meaning even if price revisits $35,000, there's no indication of excessive optimism.

Since the final round of ETF decisions is scheduled for January and February, there's little incentive for Bitcoin bears to pressure the market while negative news had zero impact. Ultimately, the path to $40,000 becomes more certain.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Ethereum price hits 6-month high amid BlackRock spot ETF buzz, but where’s the retail demand?

November 9, 2023 Coin Telegraph

blackrock

ETH price finally polevaulted the $2,000 resistance, but will retail demand and network use support the current bullish momentum?

Ether (ETH) experienced a surprising 8% rally on Nov. 9, breaking the $2,000 barrier and achieving its highest price level in six months. This surge, triggered by news of BlackRock registering the iShares Ethereum Trust in Delaware, resulted in $48 million worth of liquidations in ETH short futures. The initial announcement was made by @SummersThings on a social network, later confirmed by Bloomberg ETF analysts.

The iShares Ethereum Trust has just been registered in Delaware.

For context, BlackRock's iShares Bitcoin Trust was registered in a similar manner 7 days before they filed the ETF application with the SEC. Details below.

[announcement: I’m moving to @SynopticCom soon] pic.twitter.com/IYafIaxMzA
— Summers (@SummersThings) November 9, 2023

The news fueled optimistic expectations regarding a potential Ether spot ETF filing by BlackRock, a $9 trillion asset manager. This speculation follows BlackRock's iShares Bitcoin Trust registry in Delaware in June 2023, a week prior to their initial spot Bitcoin ETF application. However, with no official statement from BlackRock, investors may have jumped the gun, though the sheer influence of the asset manager in traditional finance leaves those betting against Ether's success in a precarious position.

Professional traders placed bullish ETH bets using derivatives

To understand how professional traders are positioned after the surprise rally, one should analyze the ETH derivatives metrics. Normally, Ether monthly futures trade at a 5%–10% annualized premium compared to spot markets, indicating that sellers demand additional money to postpone settlement.

*Ether 2-month futures premium. Source: Laevitas*

The Ether futures premium, jumping to 9.5% on Nov. 9, marked the highest level in over a year and broke above the 5% neutral threshold on Oct. 31. This shift ended a two-month bearish period and low demand for leveraged long positions.

To assess whether the break above $2,000 has led to excessive optimism, traders should examine the Ether options markets. When traders anticipate a drop in Bitcoin’s price, the delta 25% skew tends to rise above 7%, while periods of excitement typically see it dip below negative 7%.

*Ether 30-day options 25% delta skew. Source: Laevitas*

The Ether options 25% delta skew shifted from neutral to bullish on Oct. 31, and the current -13% skew is the lowest in over 12 months, but far from being overly optimistic. Such a healthy level has been the norm for the past 9 days, meaning Ether investors were anticipating the bullish momentum.

There’s little doubt that Ether bulls got the upper hand regardless of the spot ETF narrative as ETH rallied 24% before the BlackRock news, between Oct. 18 and Nov. 8. This price action reflects a higher demand for Ethereum network, as reflected by the top decentralized applications (DApps) 30-day volumes.

*Ethereum network DApps volume rank. Source: DappRadar*

Still, when analyzing the broader cryptocurrency market structure, especially the retail indicators, there’s some inconsistency with the surging optimism and demand for leverage using Ether derivatives.

Retail indicators point to dormant demand for ETH and cryptocurrencies

For starters, the Google searches for “Buy Ethereum”, “Buy ETH” and “Buy Bitcoin” have been stagnant for the past week.

*Search trend for buying Ether and cryptocurrency-related terms. Source: Google Trends*

One might argue that retail traders typically lag the bull runs, usually entering the cycle a couple of days or weeks after major price marks and 6-month high have been hit. However, there has been a declining demand for cryptocurrencies, when using stablecoins premium as a gauge for Chinese crypto retail trader activity.

The stablecoin premium measures the difference between China-based peer-to-peer USD Tether (USDT) trades and the United States dollar. Excessive buying demand tends to pressure the indicator above fair value at 100%, and during bearish markets, Tether’s market offer is flooded, causing a 2% or higher discount.

*Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX*

Currently, the Tether premium on OKX stands at 100.9%, indicating a balanced demand from retail investors. Such a level contrasts with the 102% from Oct. 13, for instance, before the crypto total market capitalization jumped 30.6% until Nov. 9. That goes on to show that Chinese investors are yet to present an excessive demand for fiat-to-crypto conversion using stablecoins.

In essence, Ether’s rally above $2,000 seems to have been driven by derivatives markets and the expectation of a spot ETF approval. The lack of retail demand is not necessarily an indicator of impending correction. However, the hype around BlackRock's Ethereum Trust registry, coupled with excessive leverage longs in ETH derivatives, raises concerns, putting the $2,000 support level to the test.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Data highlights Bitcoin’s potential path to $40K amid global economic turbulence

November 7, 2023 Coin Telegraph

<div>Data highlights Bitcoin's potential path to K amid global economic turbulence</div>

Coin Telegraph

Robust BTC derivatives data indicates strong demand for leverage longs.

Bitcoin (BTC) has been trading within a narrow 4.5% range over the past two weeks, indicating a level of consolidation around the $34,700 mark.

Despite the stagnant prices, the 24.2% gains since Oct. 7 instill confidence, driven by the impending effects of the 2024 halving and the potential approval of a Bitcoin spot exchange-traded fund (ETF) in the United States.

Investors worry about the bearish global economic outlook

Bears expect further macroeconomic data supporting a global economic contraction as the U.S. Federal Reserve holds their interest rate above 5.25% in order to curb inflation. For instance, on Nov. 6, China exports shrank 6.4% from a year earlier in October. Furthermore, Germany reported October industrial production down 1.4% versus prior month on Nov. 7.

The weaker global economic activity has led to WTI oil prices dipping below $78 for the first time since late July, despite the potential for supply cuts from major oil producers. Remarks by U.S. Federal Reserve Bank of Minneapolis President Neel Kashkari on Nov. 6 has set a bearish tone, prompting a 'flight-to-quality' response.

Kashkari stated:

“ We haven’t completely solved the inflation problem. We still have more work ahead of us to get it done."

Investors have sought refuge in U.S. Treasuries, resulting in the 10-year note yield dropping to 4.55%, its lowest level in six weeks. Curiously, the S&P 500 stock market index has reached 4,383 points, its highest level in nearly seven weeks, defying expectations during a global economic slowdown.

This phenomenon can be attributed to the fact that the firms within the S&P 500 collectively hold $2.6 trillion in cash and equivalents, offering some protection as interest rates remain high. Despite increasing exposure to major tech companies, the stock market provides both scarcity and dividend yield, aligning with investor preferences during times of uncertainty.

Meanwhile, Bitcoin's futures open interest has reached its highest level since April 2022, standing at $16.3 billion. This milestone gains even more significance as the Chicago Mercantile Exchange (CME) solidifies its position as the second-largest market for BTC derivatives.

Healthy demand for Bitcoin options and futures

Recent use of Bitcoin futures and options have made media headlines. The demand for leverage is likely fueled by what investors believe are the two most bullish catalyst for 2024: the potential for a spot BTC ETF and the Bitcoin halving.

One way to gauge market health is by examining the Bitcoin futures premium, which measures the difference between two-month futures contracts and the current spot price. In a robust market, the annualized premium, also known as the basis rate, should typically fall within the 5% to 10% range.

*Bitcoin 2-month futures annualized premium (basis). Source: Laevitas.ch*

Notice how this indicator has reached its highest level in over a year, at 11%. This indicates a strong demand for Bitcoin futures primarily driven by leveraged long positions. If the opposite were true, with investors heavily betting on Bitcoin's price decline, the premium would have remained at 5% or lower.

Another piece of evidence can be derived from the Bitcoin options markets, comparing the demand between call (buy) and put (sell) options. While this analysis doesn't encompass more intricate strategies, it offers a broad context for understanding investor sentiment.

*Deribit BTC options put-to-call 24h volume ratio. Source: Laevitas.ch*

Over the past week, this indicator has averaged 0.60, reflecting a 40% bias favoring call (buy) options. Interestingly, Bitcoin options open interest has seen a 51% increase over the past 30 days, reaching $15.6 billion, and this growth has also been driven by bullish instruments, as indicated by the put-to-call volume data.

As Bitcoin's price reaches its highest level in 18 months, some degree of skepticism and hedging might be expected. However, the current conditions in the derivatives market reveal healthy growth with no signs of excessive optimism, aligning with the bullish outlook targeting $40,000 and higher prices by year-end.

Bitcoin options data highlights traders’ belief in further BTC price upside

October 30, 2023 Coin Telegraph

Coin Telegraph

Open interest on Bitcoin options recently hit a year-to-date high, but what is fueling this newfound bullish sentiment?

The recent gains are a rare sight in 2023, even considering Bitcoin's impressive 108% year-to-date performance. Notably, the last instance of such price action occurred on March 14 when Bitcoin surged from $20,750 to $26,000 in just two days, marking a 25.2% price increase.

*Deribit BTC options daily volume, in BTC. Source: Deribit*

It's worth noting the significance of the fact that a staggering 208,000 contracts changed hands in a mere two days. To put this into perspective, the prior peak, which occurred on August 18, saw a total of 132,000 contracts exchanged, but that was during a period when Bitcoin's price plummeted by 10.7% from $29,090 to $25,980 in just two days. Interestingly, Bitcoin's options open interest, which measures outstanding contracts for every expiry, reached its highest level in over 12 months on Oct. 26.

This surge in activity has led some analysts to emphasize the potential "gamma squeeze" risk. This theoretical analysis seeks to capture the need for option market makers to cover their risk based on their likely exposure.

the #bitcoin gamma squeeze from last week could happen again

if BTCUSD moves higher to $35,750-36k, options dealers will need to buy $20m in spot BTC for every 1% upside move, which could cause explosiveness if we begin to move up towards those levels

more pic.twitter.com/OA9tJ0ZaK9
— Alex Thorn (@intangiblecoins) October 30, 2023

According to estimates from Galaxy Research and Amberdata, BTC options market makers may need to cover $40 million for every 2% positive move in Bitcoin's spot price. While this number may seem substantial, it pales in comparison to Bitcoin's staggering daily adjusted volume of $7.8 billion.

Another aspect to consider when assessing Bitcoin options volume and total open interest is whether these instruments have primarily been used for hedging purposes or neutral-to-bullish strategies. To address this ambiguity, one should closely monitor the demand difference between call (buy) and put (sell) options.

*Bitcoin options put-to-call volume ratio. Source: Laevitas.ch*

Notably, the period from Oct. 16 to Oct. 26 saw a predominance of neutral-to-bullish call options, with the ratio consistently remaining below 1. Consequently, the excessive volume observed on Oct. 23 and 24 was skewed towards call options.

However, the landscape changed as investors increasingly sought protective put options, reaching a peak of 68% higher demand on Oct. 28. More recently, the metric shifted to a neutral 1.10 ratio on Oct. 30, indicating a balanced demand between put and call options.

How confident are Bitcoin option traders?

To gauge whether investors using options have grown more confident as Bitcoin's price held above $34,000 on Oct. 30, one should analyze the Bitcoin options delta skew. When traders anticipate a drop in Bitcoin's price, the delta 25% skew tends to rise above 7%, while periods of excitement typically see it dip below negative 7%.

*Bitcoin 30-day options 25% delta skew. Source: Laevitas*

The Bitcoin options' 25% delta skew shifted to a neutral position on Oct. 24 after residing in bullish territory for five consecutive days. However, as investors realized that the $33,500 support level proved more resilient than anticipated, their confidence improved on Oct. 27, causing the skew indicator to re-enter the bullish zone below negative 7%.

Extraordinary options premiums and continued optimism

Two noteworthy observations emerge from this data. Bitcoin bulls utilizing options contracts prior to the 17% rally that began on Oct. 23 were paying the highest premium relative to put options in over 12 months. A negative 18% skew is highly uncommon and signifies extreme confidence or optimism, likely fueled by expectations of the spot Bitcoin ETF.

What stands out most, however, is the present negative 13% skew after Bitcoin's price surged by 26.7% in the 15 days leading up to Oct. 27. Normally, investors would seek protective puts to hedge some of their gains, but this did not occur. Consequently, even if the initial demand for call options was primarily driven by ETF expectations, the prevailing optimism has endured as Bitcoin soared above $34,000.

Bitcoin (BTC) options volumes experienced a significant surge on Oct. 23 and Oct. 24, marking the highest level in over six months. This activity coincided with a remarkable 17% BTC price rally over two days. Traders are now pondering whether the increased activity in the BTC options market can be solely attributed to the anticipation of a Bitcoin spot exchange-traded fund (ETF) or if the optimism has dwindled following the recent price surge above $34,000.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Uptober might be over: Bitcoin price data shows investor sentiment at 3-month low

October 12, 2023 Coin Telegraph

basis

Bitcoin price has corrected at each attempt to rally above $28,000. Cointelegraph explains why.

Bitcoin (BTC) faced a 4.9% correction in the four days following the failure to break the $28,000 resistance on Oct. 8, and derivatives metrics show fear is dominating sentiment in the market, but will it be enough to shake Bitcoin price from its current range?

Looking at the bigger picture, Bitcoin is holding up admirably, especially when compared to gold, which has fallen by 5% since June, and Treasury Inflation-Protected bonds (TIP), which have seen a 4.2% drop during the same period. Merely maintaining its position at $27,700, Bitcoin has outperformed two of the most secure assets in traditional finance.

Given Bitcoin’s price rejection at $28,000 on Oct. 8, investors should analyze BTC derivatives metrics to determine whether bears are indeed in control.

*Bitcoin/USD vs. inflation-protected TIP ETF vs. Gold. Source: TradingView*

Treasury Inflation-Protected Securities are U.S. government bonds designed to safeguard against inflation. Consequently, the ETF's value tends to rise with increasing inflation since the bond principal and interest payments adjust to inflation, preserving the purchasing power for investors.

$27,600 Bitcoin is not necessarily a bad thing

Regardless of how you frame this historic achievement, Bitcoin enthusiasts may not be entirely satisfied with its current $520 billion market capitalization, even though it surpasses global payment processor Visa's ($493 billion) and Exxon Mobil's ($428 billion) market capitalizations. This bullish expectation is partly based on Bitcoin's previous all-time high of $1.3 trillion in November 2021.

It's important to note that the DXY index, which measures the U.S. dollar against a basket of foreign currencies, including the euro, Swiss Franc and British Pound, is nearing its highest level in 10 months. This indicates a strong vote of confidence in the resilience of the U.S. economy, at least in relative terms. This alone should be enough to justify reduced interest in alternative hedge instruments like Bitcoin.

Some may argue that the 3% gains in the S&P 500 index since June contradict the idea of investors seeking cash positions. However, the top 25 companies hold a combined $4.2 trillion in cash and equivalents, in addition to being highly profitable. This explains why stocks are also being used as a hedge rather than a risk-seeking venture.

In essence, there is no reason for Bitcoin investors to be dissatisfied with its recent performance. However, this sentiment changes when we analyze BTC derivatives metrics.

Bitcoin derivatives show declining demand from bulls

To begin with, Bitcoin's future contract premium, also known as the basis rate, reached its lowest level in four months. Normally, Bitcoin monthly futures trade at a slight premium compared to spot markets, indicating that sellers demand additional money to postpone settlement. As a result, futures contracts in healthy markets should trade at an annualized premium of 5% to 10%, a situation not unique to crypto markets.

*Bitcoin two-month futures annualized premium. Source: Laevitas.ch*

The current 3.2% futures premium (basis rate) is at its lowest point since mid-June, before BlackRock filed for a spot ETF. This metric indicates a reduced appetite for leverage buyers, although it doesn't necessarily reflect bearish expectations.

To determine whether the rejection at $28,000 on Oct. 8 has led to decreased optimism among investors, traders should examine Bitcoin options markets. The 25% delta skew is a telling indicator, especially when arbitrage desks and market makers overcharge for upside or downside protection.

If traders anticipate a drop in Bitcoin's price, the skew metric will rise above 7%, and periods of excitement tend to have a negative 7% skew.

*Bitcoin 30-day options 25% delta skew. Source: Laevitas.ch*

As shown above, the Bitcoin options' 25% delta skew switched to "fear" mode on Oct. 10, with protective put (sell) options currently trading at a 13% premium compared to similar call (buy) options.

Bitcoin derivatives metrics suggest that traders are becoming less confident, which can be partly attributed to the multiple postponements of the Bitcoin spot ETF decisions by the U.S. Securities and Exchange Commission, and concerns regarding exchanges' exposure to terrorist organizations.

For now, the negative sentiment toward cryptocurrencies seems to invalidate any benefits arising from macroeconomic uncertainty and the natural hedge protection provided by Bitcoin's predictable monetary policy. At least from a derivatives perspective, the likelihood of Bitcoin's price breaking above $28,000 in the short term appears slim.

Here’s how Bitcoin investors can trade the tension surrounding a U.S. government shutdown

October 3, 2023 Coin Telegraph

Budget

Rumors of a US government shutdown impact asset prices, including Bitcoin. Here’s how BTC options traders can capitalize on the 45 day funding deadline.

Bitcoin’s (BTC) price bull run towards $28,000 on Oct. 1 was partially fueled by the uncertainty regarding the United States debt limit. However, the U.S. President Joe Biden signed the spending bill just hours before the Sept. 30 deadline, avoiding a government shutdown.

Investors now question if the momentum remains favorable for cryptocurrencies given that the worst-case political-economic scenario is no longer on the table. However, it is worth noting that this bill merely provides extra funding for the next 45 days, giving more time for the House and Senate to work on their funding plans for 2024.

At first glance, it might be tempting for investors to use futures contracts to go long on Bitcoin. However, there's a significant risk of getting liquidated if the price suddenly drops, and it's impossible to predict whether a successful budget discussion down the road will benefit cryptocurrencies.

With the current extension in place, now, lawmakers need to find a solution before Nov. 17. According to Margaret Spellings, the President and CEO of the Bipartisan Policy Center:

"We can't continue postponing our fiscal health and negotiating on the brink of government shutdowns and debt defaults."

There's no doubt that, despite narrowly avoiding a crisis, the overall risk of an economic recession remains. The U.S. Federal Reserve is grappling with persistent inflation and rising energy prices, factors that have driven the S&P 500 to its lowest point in 110 days and pushed the 10-year Treasury yield to levels not seen since October 2007.

Additionally, oil prices have surged to $90, marking a 27.5% gain in just three months. This upward pressure on inflation is expected to further constrain economic activity.

On Sept. 27, Minneapolis Fed President Neel Kashkari expressed uncertainty about whether interest rates have been raised sufficiently to combat this price growth.

Bitcoin’s initial reaction does not guarantee a bullish momentum

Amid all this turmoil, Bitcoin has increased in value, breaking through the $28,000 resistance on Oct. 2. This performance prompted investors to anticipate heightened volatility for the cryptocurrency as the upcoming debt ceiling decision approaches.

Professional traders will avoid directional risk given the uncertain outcome of the political debate and opt for the reverse (short) iron butterfly, a limited-risk, limited-profit trading strategy.

*Profit/Loss estimate. Source: Deribit Position Builder*

The prices mentioned were accurate as of Oct. 2, with Bitcoin trading at $28,326. All options listed expire on Oct. 27, but this strategy can also be adapted for different time frames. It's essential to remember that options have a set expiry date, meaning that the price increase must occur during the defined period.

The recommended neutral-market strategy involves selling 5.4 contracts of $26,000 put options while simultaneously selling 5.4 call options with a $30,000 strike. To complete the trade, one should buy 5.8 contracts of $28,000 call options and an additional 5 contracts of the $28,000 put options.

While a call option grants the buyer the right to acquire an asset, the contract seller assumes a potential negative exposure. To fully shield against market fluctuations, an investor must deposit 0.253 BTC (approximately $7,170), representing the maximum potential loss.

Conviction in volatility is essential, as the risk-reward is reversed

For this investor to profit, Bitcoin's price must be below $26,630 on Oct. 27 (a decrease of 6%) or above $29,280 (an increase of 3.4%). In essence, the trade offers a potentially substantial profit zone, but losses are 90% higher than potential gains if Bitcoin remains stagnant.

The maximum payout is 0.133 BTC (roughly $3,770). However, if a trader believes that volatility is imminent, a 6% movement within 24 days appears achievable.

It's important to note that investors have the option to reverse the operation before the options expire, preferably after a substantial Bitcoin price movement. To do this, they should repurchase the two options they had initially sold and sell the two options they had originally bought.

Will Bitcoin price hold $26K ahead of monthly $3B BTC options expiry?

September 27, 2023 Coin Telegraph

Bitcoin

Bitcoin trading volumes at a five-year low and the S&P 500 reaching its lowest levels in over three months could spell trouble for BTC bulls.

The upcoming $3 billion in Bitcoin (BTC) monthly options expiration on Sept. 29 could prove pivotal for the $26,000 support level.

BTC price faces serious headwinds

On one side, Bitcoin’s recognition in China appears to be strengthening, following a judicial report from a Shanghai Court that acknowledged digital currencies as unique and non-replicable.

Conversely, Bitcoin’s spot exchange trading volumes have dwindled to a five-year low, according to on-chain analytics firm CryptoQuant. Analyst Cauê Oliveira pointed out that a significant factor behind this decline in trading activity is the growing fear surrounding the macroeconomic outlook.

Despite the increase in long-term holders, the reduced trading volume poses a risk in terms of unexpected volatility. This means that price swings resulting from liquidations in derivative contracts could potentially cause structural market damage if there aren’t enough active participants.

Furthermore, there is growing unease among traditional financial institutions when it comes to handling crypto-related payments.

JPMorgan Chase, the largest bank in North America, is reportedly prohibiting transfers “related to crypto assets” within its retail division, Chase. The stated rationale is to protect against potential involvement in fraudulent or scam activities.

Lastly, Bitcoin holders are feeling apprehensive as the Dollar Strength Index (DXY), a measure of the dollar’s strength against other currencies, reached 106 on Sept. 26, its highest level in 10 months.

Historically, this index exhibits an inverse correlation with risk-on assets, tending to rise when investors seek safety in cash positions.

Bitcoin bulls too optimistic?

The open interest for the Sep. 29 options expiration currently stands at $3 billion. However, it is expected that the final amount will be lower due to bullish expectations of Bitcoin’s price reaching $27,000 or higher.

The unsuccessful attempt to break above $27,200 on Sept. 19 may have contributed to overconfidence among Bitcoin investors.

The 0.58 put-to-call ratio reflects the imbalance between the $1.9 billion in call (buy) open interest and the $1.1 billion in put (sell) options.

However, if Bitcoin’s price remains near $26,300 at 8:00 am UTC on Aug. 25, only $120 million worth of the call (buy) options will be available. This difference happens because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC’s price is below this level on expiry.

Bitcoin bears eye sub-$26,000 for max profit potential

Below are the four likeliest scenarios based on the current price action. The number of options contracts available on Sept. 29 for call (buy) and put (sell) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit.

This crude estimate disregards more complex investment strategies. For instance, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.

Between $25,000 and $26,000: 1,400 calls vs. 19,300 puts. The net result favors the put instruments by $430 million.
Between $26,000 and $27,000: 6,200 calls vs. 12,600 puts. The net result favors the put instruments by $170 million.
Between $27,000 and $27,500: 9,900 calls vs. 10,100 puts. The net result is balanced between call and put options.
Between $27,500 and $28,000: 12,000 calls vs. 8,900 puts. The net result favors the call instruments by $85 million.

It’s worth noting that for the bulls to level the playing field ahead of the monthly expiration, they need to achieve a 3.2% price increase from $26,200. In contrast, the bears only need a modest 1% correction below $26,000 to gain a $430-million advantage on Sept. 29.

Given that Bitcoin traded below the $26,000 support level between Sept. 1 and Sept. 11, it wouldn’t be surprising if this level were breached again as the options expiration approaches. Moreover, investor sentiment is becoming increasingly risk-averse, as evidenced by the S&P 500 dropping to its lowest level since June.

Consequently, unless there is significant news or an event that strongly favors Bitcoin bulls, the likelihood of BTC’s price breaking below $26,000 by Sept. 29 remains high.

deribit