Bitcoin price breaks from range with drop below $28K, and options tilt toward BTC bears

August 17, 2023 Coin Telegraph

Bitcoin price breaks from range with drop below K, and options tilt toward BTC bears

$570 million in weekly BTC options expire on Friday, and the recent macro and crypto news events have further tilted the advantage to bearish traders.

On August 16, Bitcoin (BTC) closed below $29,000 for the first time in 56 days. Analysts quickly pointed to this week’s FOMC minutes, which expressed concerns about inflation and the need to increase interest rates, as the likely cause.

Despite the immediate reasons for the drop, the upcoming $580 million Bitcoin options expiry on Friday has favored the bears. They could potentially make a $140 million profit on August 18, adding to the downward pressure on Bitcoin and complicating BTC’s search for a bottom.

Federal Reserve minutes did not impact traditional markets

On Aug. 16, Federal Reserve Chair Jerome Powell emphasized the 2% inflation target. This pushed the U.S. 10-year Treasury yields to their highest level since October 2007, prompting investors to shift away from riskier assets like cryptocurrencies to favor cash positions and companies that are well prepared for such a scenario.

Notably, Bitcoin had already fallen to $29,000, its lowest point in 9 days, prior to the release of the Fed minutes. The impact of the minutes was limited, especially considering the 10-year yield had been rising, indicating skepticism about the Fed's ability to control inflation.

Additionally, on August 17, S&P 500 index futures only dropped by 0.6% compared to their pre-event level on August 16. During the same time, WTI crude oil gained 1.7%, while gold traded down 0.3%.

Concerns about China's economy might have also contributed to the decline. The country reported lower-than-expected retail sales growth and fixed asset investment, potentially affecting the demand for cryptocurrencies.

Although the exact causes of the price drop remain uncertain, there's a possibility that Bitcoin could reverse its trend after the weekly options expiry on August 18.

Bitcoin bulls cast the wrong bet

Between August 8 and August 9, the price of Bitcoin briefly crossed the $29,700 mark, sparking optimism among traders using options contracts.

Deribit Bitcoin options aggregate open interest for Aug. 18. Source: Deribit

The 0.57 put-to-call ratio reflects the difference in open interest between the $365 million call (buy) options and the $205 million put (sell) options. However, the outcome will be lower than the $570 million total open interest since the bulls were caught by surprise with the latest price drop below $29,000.

For example, if Bitcoin’s price trades at $28,400 at 8:00 am UTC on Aug. 18, only $3 million worth of call options will be accounted for. This distinction arises from the fact that the right to purchase Bitcoin at $27,000 or $28,000 becomes invalid if BTC trades below those levels upon expiration.

Below are the three most likely scenarios based on the current price action. The number of options contracts available on Aug. 18 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

Between $26,000 and $28,000: 100 calls vs. 5,300 puts. The net result favors the put (sell) instruments by $140 million.
Between $28,000 and $28,500: 100 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $60 million.
Between $28,500 and $29,500: 600 calls vs. 1,300 puts. The net result favors the put (sell) instruments by $20 million.

Given the growing concern among investors about an upcoming economic slowdown due to actions taken by central banks to control inflation, it's likely that Bitcoin bears will maintain their advantage. This trend isn't limited to the upcoming Friday's expiry and is expected to continue, especially since the chances of the BTC bulls' primary short-term goal – the approval of a spot ETF – are quite slim.

As a result, those on the bullish side find themselves in a tough spot. The success of their call (buy) options relies on Bitcoin's expiry price going above $28,500. The most likely scenario, where bears could walk away with a favorable outcome of $140 million, suggests the potential for a further correction in Bitcoin's price.

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.

Bitcoin traders put eyes on $31K even as $2B in BTC options expire on Friday

July 28, 2023 Coin Telegraph

Bitcoin traders put eyes on K even as B in BTC options expire on Friday

Coin Telegraph

BTC traders fix their eyes on $31,000 even as $2 billion in Bitcoin options are set to expire this Friday.

The upcoming $2 billion Bitcoin (BTC) monthly options expiry on July 28 could potentially establish $29,500 as a support level. Some argue that the recent U.S. Federal Reserve interest rate increase to 5.25% had a detrimental effect on risk-on assets like cryptocurrencies. However, Bitcoin bulls believe that the full impact of a tighter economic policy takes time to influence the markets.

*Bitcoin daily price movements during option expiries. Source: TradingView*

Looking back, the monthly expiry on June 30 did not cause significant volatility, given that Bitcoin had already experienced a 22.2% gain between June 15 and June 23. Conversely, the May monthly expiry triggered a 9% rally, with Bitcoin's price rising from $26,100 on May 25 to $28,450 on May 29.

In contrast, the options expiry in April resulted in a 7% correction, as Bitcoin's price dropped from $29,900 on April 27 to $27,800 on May 1. This data clearly indicates that the impact of options expiry takes a few days to consolidate but eventually becomes highly relevant for setting trends.

Bulls have regulatory and the ETF momentum on their side

There are multiple spot Bitcoin ETF requests from some of the world's largest fund managers, including BlackRock and Fidelity. In addition, on July 26, a U.S. Lower House Committee approved a pair of bills aiming to clarify the distinctions between securities instruments and digital commodities.

The recent positive corporate earnings also support the bullish momentum in risk-on markets. Along with the latest Consumer Confidence data, they strengthen the argument that the risk of a recession is diminishing, at least in the short term. For starters, Meta Platform reported $32 billion in 2Q revenues, surpassing the market's estimates.

Several other companies have also reported earnings above consensus, including McDonald's, Coca-Cola, Google, Johnson & Johnson, Morgan Stanley and Novartis. As for the U.S. Consumer Confidence, the metric reached its highest level in 2 years, reaching 117 in July, up from 110.1 in June.

Data shows bulls were excessively optimistic on Bitcoin price

The open interest for the options expiry on July 28 is $2 billion. Still, the actual figure is expected to be lower because some bullish traders anticipated price levels of $31,000 or higher. This excessive optimism stemmed from Bitcoin's price trading above the resistance level from July 13 to July 24.

Deribit *Bitcoin options aggregate open interest for July 28. Source: Deribit*

The 0.56 put-to-call ratio reflects the imbalance between the $1.3 billion in call (buy) open interest and the $740 million in put (sell) options. Yet, if Bitcoin’s price remains near $29,500 at 8:00 am UTC on July 28, only $137 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $30,000 or $31,000 is useless if BTC trades below that level on expiry.

Bitcoin bears aim for sub-$29,000 to secure some profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on July 28 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 put option, effectively gaining positive exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.

Between $27,000 and $28,000: 1,100 calls vs. 10,000 puts. The net result favors the put instruments by $240 million.
Between $28,000 and $29,000: 3,000 calls vs. 6,800 puts. The net result favors the put instruments by $110 million.
Between $29,000 and $31,000: 6,500 calls vs. 6,600 puts. The result is balanced between put and call options.
Between $31,000 and $32,000: 15,400 calls vs. 3,800 puts. The net result favors the call instruments by $360 million.

Note that the bulls' best shot requires a 5.5% price increase ahead of the July 28 expiry to secure a profit. On the other hand, bears only need a modest 2% correction below $29,000 to come out ahead on the monthly expiry. However, the potential profit of $110 million doesn't justify a large effort for the bears. Moreover, given that Bitcoin has recently failed to break the $29,000 support level, the most probable outcome for the expiry is a neutral area near $30,000.

When analyzing a broader mid-to-long term scenario, Bitcoin bears may have the upper hand due to the added incentives of higher fixed-income returns resulting from the reduced 3% inflation and increased interest rates. But, considering the overall bullish momentum in the economy, there's actually a favorable outlook for Bitcoin to break above $31,000 in the following weeks.

Bitcoin options tantalizing bears to push price below $30K before Friday’s expiry

July 20, 2023 Coin Telegraph

Bitcoin options tantalizing bears to push price below K before Friday’s expiry

Bitcoin Price

Bitcoin bears are closing in on a rare win, as they have the advantage in this week’s $600 million BTC options expiry.

This week’s Bitcoin (BTC) options expiry on Friday, July 21, could solidify the $30,000 resistance level and give the bears the upper hand for the first time since the 21% rally between June 14 and June 21.

Bitcoin options expiries coincide with volatility

A review of Bitcoin’s recent price action shows that three out of the last four BTC options expiries triggered significant price movements, making it crucial for traders to pay close attention to these events.

*Bitcoin/USD price index, 4-hour. Source: TradingView*

Notably, Bitcoin’s price has consistently shown strong reactions following the weekly 8:00 am UTC options expiry. While causation cannot be established, the magnitude of these price swings warrants extreme caution leading up to the weekly expiry on July 21.

Bitcoin bears benefit from stricter regulations

While this week’s options expiry could give bears control of Bitcoin’s price in the short term, bulls have the potential advantage of the United States Securities and Exchange Commission reviewing spot exchange-traded fund proposals.

Although these proposals are still in the early stages of regulatory scrutiny, the slow progression could partially explain why the bears have managed to defend $31,000 multiple times since late June.

However, their best chance of keeping Bitcoin’s price below $30,000 lies in the worsening regulatory environment. On July 19, the global securities exchange Nasdaq suspended the launch of its cryptocurrency custodian solution due to a lack of regulatory clarity in the United States. This change of plans was justified by Nasdaq’s CEO, Adena Friedman.

Furthermore, on July 14, cryptocurrency exchange Coinbase announced the suspension of its staking services for clients in California, New Jersey, South Carolina and Wisconsin. This decision followed a June 6 lawsuit from the SEC that accused the exchange of operating as an unregistered security broker since 2019.

Bitcoin bulls’ overoptimism leads to a disappointing outcome

Bitcoin’s price briefly surpassed $31,000 on July 13 and July 14, fueling bullish bets by traders using options contracts. However, a four-hour correction brought the price back down to $30,000.

*Deribit Bitcoin options aggregate open interest for July 21. Source: Deribit*

The 0.39 put-to-call ratio reflects the difference in open interest between the $430 million call (buy) options and the $170 million put (sell) options. However, the outcome will be lower than the $600 million total open interest since the bulls were overconfident.

For example, if Bitcoin’s price trades at $30,500 at 8:00 am UTC on July 14, only $18 million worth of call options will be accounted for. This distinction arises from the fact that the right to purchase Bitcoin at $31,000 or $32,000 becomes invalid if BTC trades below those levels upon expiration.

Below are the three most likely scenarios based on the current price action. The number of options contracts available on July 21 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

Between $28,000 and $30,000: 100 calls vs. 2,400 puts. The net result favors the put (sell) instruments by $70 million.
Between $30,000 and $31,000: 600 calls vs. 1,800 puts. The net result favors the put (sell) instruments by $35 million.
Between $31,000 and $32,000: 3,100 calls vs. 1,400 puts. The net result favors the call (buy) instruments by $55 million.

Considering the recent weak macroeconomic indicators, it’s likely that bears will continue suppressing Bitcoin’s price until Friday’s expiry. Moreover, China’s second-quarter gross domestic product grew by 6.3% year-on-year, falling short of the 7.3% market expectation. Meanwhile, U.S. retail sales in June increased by 0.2% from the previous month, below the 0.50% consensus.

Consequently, the bulls find themselves in a challenging position, as their call (buy) instruments will be invalidated if Bitcoin’s expiry price falls below $30,000. Therefore, the bears’ $35 million favorable outcome may not be a significant win, but it does increase the chances of $30,000 becoming a new resistance area.

Bitcoin price data suggests bulls will succeed in holding $30K as support this time

June 23, 2023 Coin Telegraph

Bitcoin price data suggests bulls will succeed in holding K as support this time

Coin Telegraph

Two key Bitcoin price metrics suggest that bulls will be able to hold the $30,000 level as support.

Bitcoin (BTC) has been trading above $31,000 after its 24.3% rally between June 15 and June 23, which caught many off guard. For bears, that meant facing $165 million in short futures contract liquidations, but the unexpected rally also brought some degree of discomfort for investors using Bitcoin derivatives.

Inflation remains the biggest question mark for traditional markets, a point highlighted by the recent 50-basis-point interest rate increase by the Bank of England, followed by similar moves in Norway and Switzerland, leading to the highest cost of capital in over a decade for the region.

In response to questions from lawmakers on the United States House Financial Services Committee on June 21, Federal Reserve Chair Jerome Powell said that “the process of getting inflation back down to 2% has a long way to go” and reiterated that “nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”

According to JPMorgan strategists led by Marko Kolanovic, “the economy’s recent resilience may delay the onset of a recession,” so the impacts of the monetary tightening movement by the central bank are yet to be felt, “and ultimately a recession will likely be necessary to return inflation to target.”

Investors now question whether Bitcoin has the strength to trade above the $30,000 resistance amid the bearish pressure emerging from a potential economic recession and further central bank activity aimed at curbing the demand for capital.

Consequently, traders should closely monitor Bitcoin futures contract premiums and the costs of hedging using BTC options.

Bitcoin derivatives show modest improvement

Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, BTC futures contracts in healthy markets should trade at a 5% to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

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

The demand for leveraged BTC longs slightly increased as the futures contract premium jumped to 4.3% on June 22 from 3.2% one week prior, although it remains below the neutral 5% threshold.

Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign of when arbitrage desks and market makers overcharge for upside or downside protection.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

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

The 25% delta skew metric did a complete turnaround as it exited the “fear” mode on June 16 as Bitcoin’s price reclaimed the $26,000 support. The indicator continued to improve until June 22, culminating with the moderate “greed” sentiment at a negative 8% skew.

The absence of excessive optimism is a good sign

Typically, a 4.3% futures basis and a negative 8% delta skew would be considered neutral market indicators, but that is not the case given the 21.5% Bitcoin price rally between June 15 and June 22. A certain amount of skepticism is healthy for buyers using derivatives contracts and opens room for further leverage use if needed.

The heated legal battle between Binance and the U.S. Securities and Exchange Commission presents a risk for BTC futures contracts. The decisions from the U.S. District Court for the District of Columbia could severely impact the cryptocurrency market, as Binance holds the biggest market share in the spot and derivatives markets.

Uncertainty around the crypto regulatory environment and the growing risks of an economic recession are possible explanations for Bitcoin derivatives traders’ lack of excitement.

Apart from those external risks, there is no apparent driver to justify a sharp BTC price correction, giving bulls just the right amount of optimism to keep the positive momentum.

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.

Bitcoin holds $30K as bulls flaunt their advantage in Friday’s $715M BTC options expiry

June 22, 2023 Coin Telegraph

Bitcoin holds K as bulls flaunt their advantage in Friday’s 5M BTC options expiry

ARK

News of regulatory enforcement against the crypto sector fell to the wayside as Bitcoin price rallied above $30,000, and options data suggests the trend will continue.

Bitcoin's (BTC) 15% rally toward $30,300 between June 19 and June 21 caught most traders by surprise, triggering $125 million in liquidations of leveraged short futures contracts. Narrowing down the trigger for the rally is complicated, but some analysts point to the potential inflow of institutional investors if Blackrock’s exchange-traded fund (ETF) application gets regulatory approval.

BlackRock just filed with the SEC to create a spot #Bitcoin ETF.

Given their reputation, this has the highest likelihood of happening out of all the attempts at a spot ETF so far.

The institutional liquidity floodgates may finally open https://t.co/c9g2Ten1h8 pic.twitter.com/L2NmXq11gL
— Joe Consorti ⚡ (@JoeConsorti) June 15, 2023

ARK Invest CEO and chief investment officer Cathie Wood explained the rationale for the firm’s bullishness on Bitcoin price, more specifically their $1 million target. According to Wood, even in a deflationary environment, Bitcoin can still outperform by offering a solution to the traditional financial system’s counterparty risk.

Furthermore, the negative regulatory pressure eased on June 16 after Binance exchange was able to strike a temporary agreement with the U.S. Securities and Exchange Commission (SEC) to avoid a potential asset freeze. The event further cemented Bitcoin bears’ opportunity to profit on the $715 million weekly BTC options expiry.

Bears made a mistake when BTC price dropped below $25,000

Bitcoin’s price dropped below $26,300 on June 10, fueling bearish bets by traders using option contracts. Such a level was only recouped on June 16, which explains why bears have concentrated their bets on Bitcoin prices trading below $27,000.

*Deribit* *Bitcoin options aggregate open interest for June 23. Source: Deribit*

The 0.82 put-to-call ratio reflects the difference in open interest between the $415 million call (buy) options and the $300 million put (sell) options. However, the outcome will be lower as bears were caught by surprise as Bitcoin gained 10% in two days.

For instance, if Bitcoin's price remains near $29,800 at 8:00 a.m. UTC on June 23, there will be only $5 million in put options. This distinction arises since the right to sell Bitcoin at $28,000 or $29,000 is rendered void if BTC trades above that on the expiry.

Bulls are in a good position to capture a $250 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 23 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

Between $27,000 and $28,000: 3,500 calls vs. 1,200 puts. The net result favors the call (buy) instruments by $60 million.
Between $28,000 and $29,000: 7,300 calls vs. 500 puts. The net result favors the call instruments by $195 million.
Between $29,000 and $30,000: 8,600 calls vs. 100 puts. The bulls' advantage increases to $250 million.
Between $30,000 and $31,000: 10,400 calls vs. 0 puts. Bulls have total control, profiting $310 million.

This rough estimate considers only put options in bearish bets and call options in neutral-to-bullish trades. Nonetheless, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but this effect is difficult to estimate.

Bears will likely try to downplay the multiple Bitcoin exchange-traded funds (ETF) applications, including Blackrock’s and WisdomTree’s. Meanwhile, bulls should closely monitor the regulatory changes, including the ongoing Binance exchange’s investigation in France, as the Paris Prosecutor’s Office reportedly cited “acts of illegal exercise of the function of a service provider on digital assets (PSAN), and acts of aggravated money laundering.”

The critical level for the weekly expiration is $28,000, but it is impossible to predict the outcome due to increased cryptocurrency regulatory risks. If bulls are able to profit $250 million or higher, those funds will most likely be used to further strengthen the $28,000 support.

Fed pauses interest rates, but Bitcoin options data still points to BTC price downside

June 14, 2023 Coin Telegraph

calls

Fed Chair Jerome Powell announced a pause in interest rates, but Bitcoin options data still warns that a BTC price drop to $25,000 is possible.

Bitcoin's price has been pinned below $26,300 since June 10, reflecting a 14.8% correction in two months. Meanwhile, the Nasdaq tech stock market index gained 13.6% in the same period, indicating that investors are not exactly fleeing to the safety of cash and short-term debt. In fact, the demand for United States government bonds has been declining for the past six weeks.

*U.S. 2-year government bond yield. Source: TradingView*

The yield on two-year U.S. Treasurys, for example, increased from 3.80% on May 4 to 4.68% on June 14. Lower demand for debt instruments increases payouts, resulting in a higher yield. If the investor thinks that inflation will continue above target, the tendency is for those participants to demand a higher yield when trading bonds.

The U.S. Treasury is set to issue more than $850 billion in new bills between June and September. As additional debt issuance tends to cause higher yields, the market expects increased borrowing costs for families and businesses. Still, that does not explain why investors have been flocking to tech companies but avoiding Bitcoin (BTC), as depicted by the past two-month performance.

Eight consecutive weeks of crypto fund outflows

According to CoinShares' latest “Digital Asset Fund Flows Report,” the sector’s investment product outflows amounted to $88 million in the week ending on June 10. The substantial drawdown added to the ongoing eight-week streak of outflows, which now total $417 million.

The eight-week cumulative outflows for Bitcoin reached $254 million, representing approximately 1.2% of the total assets under management. Analysts at CoinShares have attributed this trend to monetary policy considerations, as interest rate hikes show no signs of slowing down, prompting investors to remain cautious.

Bitcoin has been trying to reclaim the $27,500 support for the past two weeks, but that might be harder than expected given the upcoming $600 million weekly options expiry on June 16.

A brief Bitcoin pump above $27,000 made bulls giddy

It is worth noting that the actual open interest for the options expiry will be lower since bulls concentrated their bets above $27,000. These traders likely got excessively optimistic after Bitcoin’s price gained 8% on June 6, erasing the losses that drove BTC down to $25,400.

*Bitcoin options aggregate open interest for June 16. Source: Deribit*

The 0.73 put-to-call ratio reflects the imbalance between the $350 million in call (buy) open interest and the $250 million in put (sell) options.

However, if Bitcoin’s price remains near $26,000 at 8:00 am UTC on June 16, only $27 million worth of these 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 trades below that level on expiry.

Bulls need Bitcoin price at $26,500 to avoid a $100 million loss

Below are the three most likely scenarios based on the current price action. The number of options contracts available on June 16 for call (bull) and put (bear) instruments varies depending on the expiry price.

The imbalance favoring each side constitutes the theoretical profit:

Between $24,000 and $25,000: 0 calls vs. 6,100 puts. Bears are in total control, profiting $145 million.
Between $25,000 and $26,500: 1,000 calls vs. 4,400 puts. The net result favors the put (sell) instruments by $100 million.
Between $26,500 and $27,000: 2,200 calls vs. 2,800 puts. The net result is balanced between call and put instruments.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. This oversimplification disregards more complex investment strategies.

Still, traders should be cautious as the bears are currently in a better position for Friday’s weekly options expiry, favoring negative price moves. Thus, an eventual sharp correction below $25,000 should not be discarded.

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.

Why Bitcoin’s resistance to retesting the $25K support could be futile

June 13, 2023 Coin Telegraph

Why Bitcoin’s resistance to retesting the K support could be futile

basis

Bitcoin price continues to explore the lower regions of its trading range, but a drop to $25,000 seems nearly inevitable according to derivatives data.

Bitcoin (BTC) has been trading in a narrow 3.4% range for the past three days after successfully defending the $25,500 support on June 10. In this time, investors’ attention has shifted to the macroeconomic area as the U.S. Federal Reserve will announce its interest rate decision on June 14.

Cryptocurrencies might work independently from the traditional finance markets, but the cost of capital impacts almost every investor. Back in May, the Fed raised its benchmark interest rate to 5%–5.25%, the highest since 2007.

All eyes will be on Fed’s Chair Jerome Powell media speech 30 minutes after the rate announcement as markets are pricing in 94% odds of a pause at the June meeting, based on the CME FedWatch tool.

Crypto fears more than just a FOMC meeting

The upcoming FOMC meeting isn’t the only concern for the economy, as the U.S. Treasury is set to issue more than $850 billion in new bills between now and September.

Additional government debt issuance tends to cause higher yields and, thus, higher borrowing costs for companies and families. Considering the already restrained credit market due to the recent banking crisis, odds are that gross domestic product growth will be severely compromised in the coming months.

According to on-chain analytics firm Glassnode, miners have been selling Bitcoin since the start of June, potentially adding further pressure to the price. Among the potential triggers are reduced earnings from a cooldown in Ordinals activity and the mining hash rate reaching an all-time high.

Investors now question whether Bitcoin will test the $25,000 resistance, a level unseen since mid-March and for this reason,they are closely monitoring Bitcoin futures contract premiums and the costs of hedging using BTC options.

Bitcoin derivatives show modest improvement

As a result, BTC futures contracts in healthy markets should trade at a 5% to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Bitcoin 2-month futures annualized premium. Source: Laevitas*

The demand for leveraged BTC longs has slightly increased as the futures contract premium increased to 3% from 1.7% on June 10, although it is still far from the neutral 5% threshold.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

The 25% delta skew metric entered "fear" mode on June 10 as Bitcoin’s price faced a 4.5% correction. Currently at 4%, the indicator displays a balanced pricing between protective puts and the neutral-to-bullish call options.

The crypto bear trend looks set to continue

Normally, a 3% futures basis and a 6% delta skew would be considered bearish indicators, but that is not the case given the extreme amount of uncertainty regarding the economic conditions and the recent charges against Binance and Coinbase. The SEC alleges those exchanges held unregistered offerings and sales of tokens and failed to register as brokers.

U.S. lawmakers have criticized the SEC for its heavy-handed approach to crypto enforcement. On June 12, Representative Warren Davidson proposed a bill aimed at restructuring the SEC by firing chair Gary Gensler and redistributing power between the commissioners.

The uncertain crypto regulatory environment remains a hurdle to attracting institutional investors. Furthermore, the recession risk for the U.S. economy limits the demand for risk-on assets such as Bitcoin, increasing the odds of the $25,000 support being tested.

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.

Bitcoin rebound falters amid SEC crackdown on exchanges, raising chance of a BTC price capitulation

June 8, 2023 Coin Telegraph

Coin Telegraph

Regulatory concerns continue to impact the entire crypto market and this week’s BTC options expiry could play a decisive role in pushing Bitcoin price under $26,000.

Bitcoin (BTC) price lost steam after a failed retest of the $27,400 resistance on June 6, signaling that investors became less confident after the recent regulatory actions by the U.S Securities and Exchange Commission against Binance and Coinbase. Both exchanges are being sued on multiple counts, including failure to register as licensed brokers and offering unregistered securities.

The SEC might have a difficult case ahead

According to Blockchain Association CEO Kristin Smith, the SEC is trying to circumvent formal rulemaking processes and deny public engagement. Meanwhile, Insider Intelligence crypto analyst Will Paige said the SEC’s intent is to police the space through enforcement in the absence of a regulatory framework.

Those criticisms explain why investors may be clinging to their hopes in the U.S. Financial Services Committee hearing, scheduled for June 13.

The potential overreach of the SEC has caused ripples multiple times,including the U.S. legislative. Senator Bill Hagerty, for instance, stated that the regulating agency is "weaponizing their role", and publicly called out the SEC chairman Gary Gensler.

The @SECGov is weaponizing their role to kill an industry. Allowing a company to list publicly and then stonewalling their attempts to register is indefensible. @GaryGensler, expect to hear from Congress.https://t.co/GdprSW1Yns
— Senator Bill Hagerty (@SenatorHagerty) June 6, 2023

Further supporting the thesis that the cryptocurrency space can function without crypto-banks, as the centralized exchanges are commonly known, is the sudden increase in decentralized finance (DeFi) volumes.

The median trading volume across the top three decentralized exchanges jumped 444% between June 5 and June 7. As DEX volumes surged, net outflows on Binance reached $778 million, the difference between the value of assets entering and exiting the exchange.

Bitcoin has been trying to claim back the $27,000 support, but that might be harder than expected given the upcoming $670 million weekly option expiry on June 9.

Bulls have been caught by surprise with the negative newsflow

It is worth noting that the actual open interest for the June 9 expiry will be lower since bulls concentrated their wagers above $27,000. These traders got excessively optimistic after Bitcoin’s price gained 9% between May 25 and May 29, testing the $28,000 resistance.

*Bitcoin options aggregate open interest for June 9. Source: CoinGlass*

The 0.63 put-to-call ratio reflects the imbalance between the $410 million in call (buy) open interest and the $260 million in put (sell) options. However, if Bitcoin’s price remains near $26,500 at 8:00 am UTC on June 9, only $38 million worth of these 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 trades below that level on expiry.

Bitcoin bears aim for sub-$26,000 to increase their payout

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 9 for call (bull) and put (bear) instruments varies depending on the expiry price.

The imbalance favoring each side constitutes the theoretical profit:

Between $25,000 and $26,000: 100 calls vs. 5,100 puts. Bears in total control, profiting $125 million.
Between $26,000 and $27,000: 1,500 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $65 million.
Between $27,000 and $28,000: 4,200 calls vs. 1,300 puts. The net result favors the call (bull) instruments by $80 million.
Between $28,000 and $29,000: 8,700 calls vs. 700 puts. The net result favors call (bull) instruments by $225 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. This oversimplification disregards more complex investment strategies.

Given that Bitcoin longs using futures contracts were liquidated to the tune of $100 million on June 5, bulls might have less margin required to try pumping the BTC price above the $27,000 mark. Consequently, bears seem closer to scoring a decent profit on Friday's options expiry.

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.

Bitcoin price capitulation below $26K increases as Friday’s BTC options expiry looms

May 17, 2023 Coin Telegraph

capitulation

This week’s BTC options expiry could play a decisive role in Bitcoin price potentially trading below the $26,000 level.

Bitcoin (BTC) price lost steam after a failed rupture of the $27,500 resistance on May 15, putting bears in a better position for the May 19 expiry. The regulatory newsflow likely played a key role in trimming investors’ risk appetite as governments seek more control over the sector.

In a memo circulated among committee members, Democrats in the United States legislature sought to cement the SEC’s authority over crypto. The document was made public on May 10, including the argument that nearly all digital assets constitute securities. Moreover, according to Gensler’s view, even network nodes are in violation of securities laws.

The United Kingdom’s Treasury Committee “strongly recommended” on May 17 regulating retail crypto trading and investment activity as gambling, consistent with the principle of “same risk, same regulatory outcome.” Treasury Committee Chair Harriett Baldwin described Bitcoin and Ether as accounting for two-thirds of the total market capitalization of crypto assets, both of which she claimed are “unbacked.”

The $735 million Bitcoin weekly options expiry on May 19 might play a decisive role in determining whether the price will capitulate by falling below $26,000.

Bitcoin could be making a short-term bottom

Bitcoin bears will try to take advantage of the negative regulatory environment, and uncertainty caused by the risk of the U.S. Treasury ‘running out of funds’ as the debt ceiling approaches. Such a pessimistic scenario partially explains why some Bitcoin traders decided to reduce exposure over the past couple of weeks.

*Bitcoin four-hour price movements during option expiries. Source: TradingView*

Bitcoin price traded down 6.6% in the 36 hours that preceded the latest BTC options expiry on May 12, marking a short-term bottom on the 4-hour chart. More importantly, the subsequent 3-day rally towards $27,500 was short-lived, favoring the thesis of bearish momentum.

Bitcoin options data shows bulls were excessively optimistic

The open interest for the May 19 options expiry is $735 million, but the actual figure will be lower since bulls concentrated their wagers above $28,000. These traders got excessively optimistic after Bitcoin’s price gained 7% between May 12 and May 15, testing the $27,500 resistance.

*Bitcoin options aggregate open interest for May 19. Source: CoinGlass*

The 0.42 call-to-put ratio reflects the imbalance between the $424 million in call (buy) open interest and the $312 million in put (sell) options. However, if Bitcoin’s price remains near $26,500 at 8:00 am UTC on May 19, only $30 million worth of these 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 trades below that level on expiry.

Bitcoin bulls aim for $27,000 to balance the scales

Below are the four most likely scenarios based on the current price action. The number of options contracts available on May 19 for call (bull) and put (bear) instruments varies depending on the expiry price.

The imbalance favoring each side constitutes the theoretical profit:

Between $25,000 and $26,000: 100 calls vs. 7,800 puts. Bears in total control, profiting $190 million.
Between $26,000 and $27,000: 1,100 calls vs. 4,300 puts. The net result favors the put (sell) instruments by $80 million.
Between $27,000 and $28,000: 2,300 calls vs. 2,000 puts. The result is balanced between put and call options.
Between $28,000 and $29,000: 5,700 calls vs. 700 puts. The net result favors the call (bull) instruments by $140 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification 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.

Still, traders should be cautious as the bears are currently in a better position for Friday’s weekly options expiry, favoring negative price moves. Thus, an eventual capitulation below $26,000 should not be discarded.

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.

This Bitcoin options strategy allows early bird traders to prepare for BTC’s next breakout

May 15, 2023 Coin Telegraph

Coin Telegraph

Crypto traders expecting a price reversal could use this options strategy to get positioned in Bitcoin.

Bitcoin’s price broke below its 55-day resistance at $27,000 on May 12, down 12.3% in 30 days. But more importantly, it decoupled from the S&P 500 Index, which is basically flat from 30 days ago and 15% below its all-time high.

*Bitcoin price in USD (right) vs. S&P 500 futures (left), 12-hour. Source: TradingView*

As the chart indicates, for some reason, Bitcoin (BTC) investors believe that the favorable macroeconomic trends for risk markets were overshadowed by the increasing risk perception of the cryptocurrency sector.

Financial crisis could fuel Bitcoin’s price increase

For starters, there’s the impending United States government debt ceiling crisis, which, according to U.S. Treasury Secretary Janet Yellen, could cause an “economic and financial catastrophe." The increased risk of default should, in theory, be beneficial for scarce assets, as investors seek shelter from a weaker U.S. dollar.

The $5.6 trillion commercial real estate market in the U.S. is subject to additional risks due to high interest rates and troubled regional banks. Guggenheim Partners chief investment officer Anne Walsh stated, “We’re likely going into a real estate recession, but not across the entire real estate market."

There is also positive news on the cryptocurrency regulatory front, as the industry gathers additional support against the regulatory efforts of the U.S. Securities and Exchange Commission (SEC). The U.S. Chamber of Commerce filed an amicus brief on May 9, defending the Coinbase exchange and accusing the SEC of deliberately creating a precarious and uncertain landscape.

Further fueling investors’ hope is the Bitcoin halving expected for April–May 2024, when the miners’ incentive per block will be reduced from 6.25 BTC to 3.125 BTC. Addresses holding 1 BTC or more reached one million on May 13, according to the Glassnode analytics firm. In total, a whopping 190,000 “whole-coiners” have been added since February 2022.

Despite the recent Bitcoin price weakness, there are enough drivers and potential triggers to sustain a considerable bull run in the upcoming months. Professional traders are aware of the liquidation risks associated with futures contracts, so their preferred investment strategies include options instruments.

How to apply the risk reversal strategy in Bitcoin

Options trading presents opportunities for investors to profit from increased volatility or obtain protection from sharp price drops, and these complex investment strategies, involving more than one instrument, are known as “option structures."

Traders can use the “risk reversal” option strategy to hedge losses from unexpected price swings. The investor benefits from being long on the call option but pays for those by selling the put. Basically, this setup eliminates the risk of the stock trading sideways and comes with limited risk if the asset trades down.

*Profit and loss estimate. Source: Deribit Position Builder*

The above trade focuses exclusively on June 30 options, but investors will find similar patterns using different maturities. Bitcoin was trading at $27,438 when the pricing took place.

First, the trader needs to buy protection from a downside move by buying 2.3 BTC puts (sell) $22,000 options contracts. Then, the trader will sell 2.0 BTC put (sell) $25,000 options contracts to net the returns above this level. Finally, the trader should buy 3.2 call (buy) $34,000 options contracts for positive price exposure.

Investors are protected down to $25,000

That options structure results in neither a gain nor a loss between $25,000 (down 9%) and $34,000 (up 24%). Thus, the investor is betting that Bitcoin’s price on June 30 at 8:00 am UTC will be above that range while gaining access to unlimited profits and a maximum 0.275 BTC negative return.

If the Bitcoin price rallies toward $37,250 (up 36%), this investment results in a 0.275 BTC gain. Moreover, after a 42% rally to $39,000 within 45 days, net returns are 0.41 BTC. In essence, unlimited gains with a capped loss.

Even though there is no initial cost associated with this options structure, the exchange will require a 0.275 BTC margin deposit to cover the negative exposure.

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.

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