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Is excessive bullish optimism behind Bitcoin’s drop below $60K?

Bitcoin’s futures premium hit its highest level in 5 months, but was this the primary reason for BTC’s fall below $60,000?

Bitcoin (BTC) has a long history of forming local tops when events that are anticipated by the market occur. The recent Bitcoin exchange-traded fund (ETF) launch on Oct. 19 was no different and led to a 53% monthly rally to an all-time high at $67,000.

Now that the price has briefly fallen below $60,000, investors are attempting to understand if the 10% correction was a healthy short-term profit taking or the end of the bull run. To determine this, traders need to analyze BTC's previous price activity to evaluate the possible similarities.

Bitcoin price in USD. Source: TradingView

The chart above depicts the day of a New York Times headline announcing that "Bitcoin gets cautious nod from China's central bank" in November 2013. At the time, Yi Gang, the deputy governor of the People's Bank of China (POBC), said that people could freely participate in Bitcoin's market. He even mentioned a personal view that suggested a constructive long-term perspective on digital currency.

It's also worth mentioning that this favorable media coverage on Chinese state-run television aired on Oct. 28, and it showed the world's first Bitcoin ATM in Vancouver.

Bearish events can also be anticipated

Bearish examples can also be found throughout Bitcoin's 12-year price action. For example, the April 2014 Chinese ban marked a 5-month price bottom.

Bitcoin price in USD. Source: TradingView

On April 10, 2014, Huobi and BTC Trade, the two of China's largest exchanges, said their trading accounts at certain domestic banks would be closed within one week. Once again, rumors had been circulating since March 2014, and this was fueled by a note on the Chinese news outlet Caixin.

More recent events included the CBOE Bitcoin futures launch on Dec. 19, 2017, which preceded the infamous $20,000 all-time high by one day. Another event that marked a local top was the Coinbase IPO on Nasdaq when Bitcoin price reached $64,900. Both events are signaled on the following chart:

Bitcoin price at Coinbase in USD. Source: TradingView

Notice how all of the above events were largely anticipated, even though some did not have a precise announcement date. For example, Bitcoin's futures-based ETF's Oct. 19 initial trading session was preceded by SEC's Chair Gary Gensler's statement on Aug. 3 that the regulator would be open to accepting a BTC ETF application using CME derivatives instruments.

It's possible that investors had previously positioned themselves ahead of the ProShares Bitcoin Strategy ETF launch and a look at BTC's derivatives markets could possibly provide more insight into this.

The futures premium was not "exaggerated"

The futures premium, also known as the basis rate, measures the price gap between futures contract prices and the regular spot market. Quarterly futures are the preferred instruments of whales and arbitrage desks. Although it might seem complicated for retail traders due to their settlement date and price difference from spot markets, their most significant advantage is the lack of a fluctuating funding rate.

Some analysts have pointed to the "return of the contango" after the bais rate reached 17%,which was the highest level in 5 months.

In a normal situation, futures markets of any kind (soy, S&P 500, WTIl) will trade at a slightly higher price versus the regular spot market. That happens mainly because the investor needs to wait until the contract expires to collect his payout, so there's an opportunity cost embedded, and this causes the premium.

Bitcoin 3-month futures annualized premium. Source: laevitas.ch

Let's assume one does arbitrage trades, aiming to maximize the funds held in USD. This trader could buy a stablecoin and get a 12% annualized yield using decentralized finance (DeFi) or centralized crypto lending services. A 12% premium on the Bitcoin futures market should be deemed a 'neutral' rate for a market maker.

Excluding the short-lived 20% peak on Oct. 21, the basis rate remained below 17% after a 50% rally month-to-date. As a comparison, on the eve of Coinbase's stock launch, the futures premium skyrocketed to 49%. Therefore, those naming the current scenario as somehow excessively optimistic are just wrong.

Liquidation risks were also not "imminent"

Whenever buyers are overconfident and accept a steep premium for leverage using futures contracts, a 10% to 15% price drop could trigger cascading liquidations. However, the mere presence of a 40% or higher annualized premium does not necessarily translate to an imminent crash risk because buyers can add margin to keep their positions open.

As the main derivatives metric shows, a 10% drop from the $67,000 all-time high on Oct. 20 was not enough to cause any sign of worry from professional traders as the basis rate stood at a healthy 12% level.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

Bulls target $100 Filecoin (FIL) after data points to improving fundamentals

FIL might be more than 70% away from its all-time high, but derivatives data shows traders are steadily building leveraged positions.

Some traders have said that Filecoin (FIL) has lost its momentum because its current price at $64 is more than 70% below its all-time high at $238. However, this decentralized data-sharing platform is showing signs of increasing adoption and this could cause the FIL token price to accelerate its current uptrend.

The FIL token is used to purchase storage space and retrieve data from the Filecoin Network. At the same time, its users gain rewards for selling their excess storage using this open-source platform. To compete with existing centralized cloud storage services, Filecoin has economic incentives to ensure files are reliably stored over time.

Filecoin (FIL) price at Coinbase in USD. Source: TradingView

Notice how the past three weeks showed a potential reversion to the previous downtrend movement. That upward channel points to a $90 support by mid-November and resistance near $107, which would be a 55% gain from the current pricing.

Related: Bitcoin-related altcoins surge as BTC ETF rumors spread across the sector

Partnerships and adoption could pave the way to $100

On Sept. 14, Filecoin announced a referral program for users who bring members carrying datasets larger than 90 Terabytes. The network reached 9,000,000 Terabytes in August, and according to their website, there are over 3,000 systems and storage providers serving capacity to 400+ applications.

On Oct. 13, Filecoin announced a storage collaboration with Flow Blockchain, which is backed by Dapper Labs. The service will establish decentralized data storage for nonfungible tokens (NFTs), along with the media assets associated with them. Flow's platforms include Eternal, Starly, Versus and the upcoming multiplayer online game Chainmonsters.

More importantly, on Oct. 15, the daily release of Filecoin tokens will decrease by 23.8% to mark a year since the mainnet launched. Specifically, that affects the 7.5% stake held by early investors, equivalent to 150 million FIL tokens after the three-year issuing period.

Filecoin future gregate open interest. Source: Bybt

Since Sep. 30, Filecoin futures open interest has increased by 45%, signaling that investors' interest is finally starting to pick up. This metric represents the total number of contracts in play, regardless of whether they have actually been traded on a specific date.

Glass half full: The funding rate has room for buyers' leverage

To assess whether the market is leaning bullish, one should analyze the perpetual contracts funding rate. Even though buyers and sellers' open interest is matched at all times, leverage can vary. When buyers (longs) are demanding more leverage, the funding rate turns positive. Thus, they are the ones paying the fees to the sellers (shorts).

However, the opposite situation occurs when shorts require additional leverage, and this causes the funding rate to turn negative.

Filecoin perpetual futures 8-hour funding rate. Source: Bybt.com

The above chart shows a brief period of excessive buyers (longs) leverage building in early September as the funding rate reached 0.10% or 2.1% per week. More recently, Filecoin's funding rate surpassed 0.06% per 8-hour as FIL token struggled with the $80 resistance on Oct. 8 but failed to break through.

Currently, derivatives metrics show few signs that investors have abandoned Filecoin despite its price hanging 70% below the $238 all-time high. The recent partnership with Flow Blockchain, increasing network use and capacity, and the reduced token emission point to a possible continuation of the previous three-week uptrend. Nothing seems to be holding back FIL from reaching the $90 to $107 range in November.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

ProShares Bitcoin ETF to debut on NYSE on Oct. 19

The first Bitcoin futures-linked ETF is finally launching in the United States after years of effort.

The first Bitcoin (BTC) futures-linked exchange-traded fund (ETF) in the United States, ProShares’ Bitcoin Strategy ETF, will begin trading on the New York Stock Exchange (NYSE) on Oct. 19 under the ticker BITO.

ProShares CEO Michael Sapir said the launch marks an important milestone for cryptocurrency ETFs in the United States following several years of effort to list one on an exchange:

“BITO will continue the legacy of ETFs that provide investors convenient, liquid access to an asset class. 1993 is remembered for the first equity ETF, 2002 for the first bond ETF, and 2004 for the first gold ETF. 2021 will be remembered for the first cryptocurrency-linked ETF.”

Sapir went on to say that the Bitcoin ETF’s debut on NYSE unlocks massive exposure for investors in traditional financial markets.

“BITO will open up exposure to Bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider and creating a Bitcoin wallet or are concerned that these providers may be unregulated and subject to security risks,” he said.

Related: Grayscale hints at plans to convert Bitcoin trust into BTC-settled ETF

The news comes shortly after the U.S. Securities and Exchange Commission (SEC) accepted the registration request for ProShares’ Bitcoin ETF on Oct. 15. On the same day, the SEC also accepted the registration request for shares of Valkyrie’s Bitcoin Strategy ETF for listing on Nasdaq.

This story is developing and may be updated.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

Bitcoin bulls target prices above $58K ahead of Friday’s $820M options expiry

$820 million in BTC options expire on Oct. 15, and data signals that bulls are set to celebrate another positive week.

Everyone is talking about a six-figure Bitcoin (BTC) price now that the digital asset has broken out of its multi-month downtrend and confirmed that a bullish trend is in play. 

If Bitcoin happens to enter a parabolic move toward $110,000, that would finally match PlanB’s Stock-to-Flow model prediction. According to the pseudonymous analyst, the scarcity and valuation of gold and other precious metals and “Elon Musk’s energy FUD and China’s mining crackdown” are a few of the factors responsible for the past five months of 50% or higher inaccuracy in the model.

Bulls’ hopes mostly cling to an exchange-traded fund being approved by the United States Securities and Exchange Commission. Currently, there are multiple requests pending review between Oct. 18 and Nov. 1, but the regulator could postpone its final decision.

Oct. 15’s $830 million options expiry was largely impacted by the 20% price rally initiated on Oct. 4, which most likely eliminated 92% of the put (sell) options.

Bitcoin price on Coinbase in USD. Source: TradingView

The aftermath of China’s mining crackdown was an important event that might have fueled investor sentiment, and research shows the U.S. accounting for 35.4% of the Bitcoin hash rate.

Furthermore, as Cointelegraph reported, the U.S. states of Texas and Ohio are also expected to receive additional large-scale Bitcoin mining centers, which will effectively boost the U.S. crypto market share even higher.

The Oct. 8 expiry was profitable for bulls

Following last week’s $370 million estimated net profit from the BTC options expiry, bulls had more firepower, and this is evident in this Friday’s $820 million expiry. This advantage explains why the call (buy) options open interest is 43% larger than the neutral-to-bearish put options.

Bitcoin options aggregate open interest for Oct. 15. Source: Bybt

As the above data shows, bears placed $335 million in bets for Friday’s expiry, but it appears that they were caught by surprise, as 92% of the put (sell) options are likely to become worthless.

In other words, if Bitcoin remains above $56,000 on Oct. 15, only $36 million worth of neutral-to-bearish put options will be activated on Friday’s 8:00 am UTC expiry.

Bulls have a reason to push BTC price above $58,000

Below are the four likeliest scenarios for Oct. 15’s expiry. The imbalance favoring either side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:

  • Between $52,000 and $54,000: 3,140 calls vs. 2,110 puts. The net result is $55 million favoring the call (bull) instruments.
  • Between $54,000 and $56,000: 3,700 calls vs. 1,240 puts. The net result is $130 million favoring the call (bull) instruments.
  • Between $56,000 and $58,000: 4,850 calls vs. 680 puts. The net result is $235 million favoring the call (bull) instruments.
  • Above $58,000: 6,230 calls vs. 190 puts. The net result is complete dominance, with bulls profiting $350 million.

This raw estimate considers call options being exclusively used in bullish bets and put options in neutral-to-bearish trades. However, investors might have used a more complex strategy that typically involves different expiry dates.

Bears need a 7% price correction to reduce their loss

In every scenario, bulls have absolute control of this Friday’s expiry, and there are a handful of reasons for them to keep the price above $56,000. On the other hand, bears need a 7% negative move below $54,000 to avoid a loss of $235 million or higher.

Nevertheless, traders must consider that during bull runs, the amount of effort a seller needs to pressure the price is immense and usually ineffective. Analytics point to a considerable advantage from call (buy) options, fueling even more bullish bets next week.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

Traders pin Ethereum’s route to new ATH to eventual Bitcoin ETF approval

ETH price is lagging behind BTC's recent gains, but data signals that traders are confident in the altcoin breaking through $4,000 in the short-term.

Ether (ETH) price is lagging Bitcoin's (BTC) price action by 13% in October, but is this relevant? To date, the altcoin has still outperformed BTC by 274% in 2021. However, traders tend to be short-sighted and some will question whether the Ethereum network can successfully migrate to proof of stake (PoS) validation and finally solve the high gas fees issue.

Bitcoin and Ether prices at Bitstamp. Source: TradingView

Moreover, the increasing competition from smart contract networks like Solana (SOL) and Avalanche (AVAX) have been worrying investors:

According to Cointelegraph, the recent speculation over the possible approval of a Bitcoin exchange-traded fund (ETF) raised traders' appetite for BTC. The U.S. Securities and Exchange Commission (SEC) is expected to announce its decision on multiple ETF requests over the next couple of weeks. However, it remains a possibility that the regulator will postpone these dates.

Pro traders are unfazed by the recent price stagnation

To determine whether professional traders are leaning bearish, one should start by analyzing the futures premium — also known as the basis rate. This indicator measures the price gap between futures contract prices and the regular spot market.

Ether's quarterly futures are the preferred instruments of whales and arbitrage desks. These derivatives might seem complicated for retail traders due to their settlement date and price difference from spot markets, but their most significant advantage is the lack of a fluctuating funding rate.

Ether three-month futures basis rate. Source: Laevitas.ch

The three-month futures typically trade with a 5% to 15% annualized premium follows the stablecoin lending rate. By postponing settlement, sellers demand a higher price, and this causes the price difference.

As depicted above, Ether's failure to break the $3,600 resistance has not caused a shift in pro traders' sentiment because the basis rate remains at a healthy 13%. This shows that there is no excessive optimism at the moment.

Retail traders have been neutral for the past five weeks

Retail traders tend to opt for perpetual contracts (inverse swaps), where a fee is charged every eight hours to balance the leverage demand. To understand if some panic selling occurred, one must analyze the futures markets funding rate.

Ether perpetual futures 8-hour funding rate. Source: Bybt

In neutral markets, the funding rate tends to vary from 0% to 0.03% on the positive side. This fee is equivalent to 0.6% per week and indicates that longs are the ones paying it.

Since Sept. 7, there hasn't really been any indication of high leverage demand from either bulls or bears. This balanced situation reflects retail traders' lack of appetite for leverage long positions, but at the same time shows little panic selling or excessive fear.

Derivatives markets show that Ether investors are not worried about the recent underperformance versus Bitcoin. Furthermore, the lack of excessive long leverage after a 274% gain year-to-date should be positively portrayed.

By leaving some room for bullishness without compromising the derivatives market structure, Ether traders seem prepared for a rally above its all-time high, especially if a Bitcoin ETF is approved.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

Bitcoin price is correcting, but what does futures data show?

BTC price rejected near $58,000 but derivatives data shows traders positioned in a neutral-to-bullish, leaving sufficient “room” for a new all-time high in 2021.

Bitcoin had been underperforming most altcoins for the past two months, but that trend reversed this week when (BTC's) 20% rally pushed its market capitalization to break the $1 trillion mark on Oct. 6. That shifted investors' attention back to the leading cryptocurrency, and altcoins are currently in the red for the day. 

The current positive momentum could be dangerous if Bitcoin traders become overconfident and abuse leverage to open long positions. To avoid this, traders need to carefully analyze derivatives markets to exclude this risk.

Top 14 coins weekly performance. Source: CoinMarketCap

Notice above how the altcoin market capitalization increased by 5.8% while Bitcoin posted a 20.8% gain in the same period. Sure enough, there were some outliers like Shiba Inu (SHIB) which rose by 200%, Fantom (FTM), which rallied 60%, and Klaytn (KLAY), which gained 36%. However, the aggregate market capitalization from altcoins did not accompany Bitcoin's performance.

Some well-known personalities, such as billionaire Wall Street investor Bill Miller recently expressed their optimism for Bitcoin while raising concerns on most altcoin projects. Miller explicitly mentioned the "big banks" getting involved and referred to "huge amounts" of venture capital money flowing into Bitcoin.

The recent Bitcoin frenzy seems driven by the macro-economic scenario. The United States increased its debt limit by $480 billion to pay off its obligations until early December. The inflationary pressure brought by unending stimulus packages and meager interest rates has been fueling the long rally in commodities.

For example, oil reached its highest level in seven years, and wheat futures recently hit a record high not seen since February 2013. Even the S&P Case-Shiller home price index has presented an annualized 23.3% gain.

To understand if Bitcoin traders got overly excited, traders should analyze Bitcoin's derivatives indicators like the futures markets premium and options skew.

The futures premium shows traders are slightly bullish

The basis rate measures the difference between longer-term futures contracts and the current spot market levels. This indicator is also frequently referred to as the futures premium.

Bitcoin 3-month futures annualized basis. Source: Laevitas.ch

A 5% to 15% annualized premium is expected in healthy markets, which is a situation known as contango. This price difference is caused by sellers demanding more money to withhold settlement longer.

The recent 20% Bitcoin price rally caused the indicator to reach the upper limit of this neutral zone, meaning investors are bullish but not yet overconfident. Whenever buyers demand excessive leverage, the basis rate can easily surpass 25%, as seen in mid-May.

To exclude externalities specific to the futures instrument, one should also analyze options markets.

Bitcoin options signal "neutral" sentiment

The 25% delta skew compares similar call (buy) and put (sell) options. This metric will turn positive whenever "fear" is prevalent because traders expect potential downside.

The opposite holds when option traders are bullish, causing the 25% delta skew indicator to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.

Deribit BTC options 25% delta skew. Source: Laevitas

The above chart shows that there hasn't been a single instance of options traders becoming overconfident in the past six months, which would signal "greed" because the 25% delta skew dropped below negative 8%. Meanwhile, the indicator has ranged near 0 for the past week, showing balanced risks between the bears and bulls.

Those findings necessarily show a lack of confidence from buyers, but it is quite the opposite. Had Bitcoin bulls already been overly confident at $57,000, there would be little room for additional leverage, increasing the risk of a cascading liquidation if a momentary price correction occurred.

Bulls are modestly confident and even a 20% price correction is unlikely to change the situation because the futures market's basis rate shows a reasonable premium after the recent rally.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

Bitcoin price is back at $50K, but exactly how ‘bullish’ are the bulls?

BTC's futures markets premium and options risk gauge show that there are not any signs of excessive leverage or FOMO from traders — yet.

Cryptocurrency markets rallied 12.5% over the past seven days to reach a $2.44 trillion market capitalization. However, that move doesn't seem to be inspiring confidence because the same level was tested 16 days ago when a 27% retrace followed ether's (ETH) attempt to break $3,650 over the next six days. 

Regulation seems to be a key concerning factor for buyers as the U.S. House of Representatives is expected to vote on the $1 trillion infrastructure bill this month. In addition to defining who qualifies as a broker, the legislation would impose anti-money laundering (AML) and know-your-customer (KYC) type requirements on many kinds of cryptocurrency transactions, which could also be detrimental for DeFi protocols.

Top eight cryptos 7 and 30-day performances. Source: CoinMarketCap

As shown above, the negative performance seen in the top-10 cryptocurrencies has impacted investor sentiment over the past 30 days. For this reason, it's important to measure more than just Bitcoin's nominal price. Traders should also analyze BTC's derivatives indicators like the futures markets premium and options skew.

The futures premium shows traders are slightly bullish

The basis rate is also frequently referred to as the futures premium and it measures the difference between longer-term futures contracts and the current spot market levels.

A 5% to 15% annualized premium is expected in healthy markets, which is a situation known as contango. This price difference is caused by sellers demanding more money to withhold settlement longer.

Bitcoin 3-month futures annualized basis. Source: Laevitas.ch

As depicted above, the current 9% annualized premium is neutral but shows an improvement over the previous couple of weeks. That indicates that traders are cautiously optimistic, leaving room for further long leverage when confidence is fully restored.

Options traders exit 'fear' mode

To exclude externalities specific to the futures instrument, one should also analyze options markets.

The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when "fear" is prevalent as the protective put options premium is higher than similar risk call options.

The opposite holds when market makers are bullish, causing the 25% delta skew indicator to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.

Deribit BTC options 25% delta skew. Source: Laevitas

Notice how Bitcoin option traders entered the "fear" level on Sept. 25 as the $41,000 support was tested multiple times. Nevertheless, a drastic change took place since Sept. 30, and the indicator now sits at a neutral zone.

As the situation currently stands, both the futures' basis and options 25% skew show a typical "glass half full" scenario. Meaning that even though Bitcoin reached its highest level in 27 days and is above the $50,000 resistance, there's still room for buyers to strap on additional leverage before metrics flash signs of overextension or euphoria.

A $50,000 breakout with the current meager derivatives data would usually be interpreted as a weakness. However, considering that the total crypto capitalization is still in the same place as 30 days ago and the unmitigated regulatory concerns, there is no reason to worry. At the moment, neither the futures markets nor options markets show any signs of bearishness.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

French regulator warns against unauthorized crypto platforms

AMF once again advised investors to only invest in crypto through authorized services listed on official websites.

French stock market regulator, the Autorité des Marchés Financiers (AMF), continues monitoring the cryptocurrency market to warn investors about unauthorized crypto services.

On Oct. 1, AMF updated its web portals identified as offering crypto and foreign exchange (forex) investments through unauthorized entities. The list included four websites related to cryptocurrency derivatives investments alongside 12 forex-related sites.

According to the regulator, the listed entities have been offering investment products without being authorized to provide such services. To protect investors from potentially fraudulent investments, AMF and French Prudential Supervision and Resolution Authority (ACPR) regularly update the blacklist of unauthorized investment providers. Still, those lists are “not intended to be complete” as “new unauthorized entities appear regularly.”

The authority strongly recommended investors to follow the list of authorized investment providers using the online register of financial service providers as well as the list of authorized in the financial investment advisor or crowdfunding categories.

The AMF’s latest warning comes shortly after Paris-based derivatives fund manager Melanion Capital launched a Bitcoin (BTC) exchange-traded fund (ETF) in August. Melanion CEO Jad Comair reportedly said that getting the fund approved by AMF was “a real challenge because of the sensibilities and politics currently surrounding Bitcoin and Bitcoin investing.”

Related: South Africa's financial regulator issues warning against Binance

Global authorities have been increasingly expressing concerns over unregulated crypto investment services recently.

In mid-August, the Australian Securities and Investments Commission advised citizens to only invest in crypto via financial institutions holding an Australian Financial Services license. According to the Australian Competition and Consumer Commission, crypto scams made up more than 50% of Australian investors’ losses in the first six months of 2021.

Earlier this year, Bank of France governor Francois Villeroy de Galhau urged Europe to prioritize crypto regulation due to the risk of digital assets challenging its monetary sovereignty.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin

Bears intend to pin Bitcoin price below $43K until Friday’s $700M expiry passes

$700 million in BTC options expire on Friday, and derivatives data signals that bears are positioned to profit from a sub-$45,000 Bitcoin price.

Bitcoin (BTC) has been trading in a descending pattern since the strong $53,000 rejection that occurred on Sept. 7, and the $3.4 billion futures contracts liquidation along with China's ban on crypto trading appear to have severely impacted traders' morale. 

Adding to the negative sentiment, major crypto exchanges like Binance and Huobi halted some services in mainland China, and some of the largest Ethereum mining pools, like Sparkpool and BeePool were forced to shut down completely.

Bitcoin price in USD at Coinbase. Source: TradingView

Based on the above chart, it is possible to understand why buyers placed 80% of their bets at $44,000 or higher. However, the past two weeks definitively caused those call (buy) options to lose value quickly.

On Sept. 25, the People's Bank of China (PBoC) posted a nationwide ban on crypto and barred companies from providing financial transactions and services to market participants. The news triggered an 8% dip in Bitcoin's price along with a broader pullback on altcoins.

The bearish sentiment was confirmed after Tesla CEO Elon Musk expressed his support for cryptocurrency at the Code Conference in California.

Musk said:

"It is not possible to, I think, destroy crypto, but it is possible for governments to slow down its advancement."

Had we been in a neutral-to-bullish market, those remarks would likely have reversed the negative trend. For example, on July 21, Elon Musk said that Bitcoin had already hit his benchmark on renewable energy. As a result, Bitcoin price, which had previously dropped 12% in ten days, reverted the move and hiked 35% over the next ten days.

The Oct. 1 expiry will be a strength test for bulls because any price below $42,000 means a bloodbath with absolute dominance of put (sell) options.

Bitcoin options aggregate open interest for Oct. 1. Source: Bybt.com

Initially, the $285 million neutral-to-bullish instruments dominated the weekly expiry by 21% compared to the $320 million puts (sell) options.

However, the 1.21 call-to-put ratio is deceiving because the excessive optimism seen from bulls could wipe out most of their bets if Bitcoin price remains below $43,000 at 8:00 am UTC on Friday.

After all, what good is a right to acquire Bitcoin at $50,000 if it's trading below that price?

Bears were also caught by surprise

Sixty-six percent of the put options, where the buyer holds a right to sell Bitcoin at a pre-established price, has been placed at $42,000 or lower. These neutral-to-bearish instruments will become worthless if Bitcoin trades above that price on Friday morning.

Below are the four most likely scenarios that consider the current price levels. The imbalance favoring either side represents the potential profit from the expiry.

The data shows how many contracts will be available on Friday, depending on the expiry price.

  • Between $40,000 and $41,000: 110 calls vs. 4,470 puts. The net result is $175 million favoring the protective put (bear) instruments.
  • Between $41,000 and $43,000: 640 calls vs. 4,000 puts. The net result continues to favor bears by $140 million.
  • Between $43,000 and $45,000: 1,780 calls vs. 2,070 puts. The net result is balanced between bears and bulls.
  • Above $45,000: 2,530 calls vs. 1,090 puts. The net result shifts in favor of bulls by $65 million.

This crude estimate considers call (buy) options used in bullish strategies and put (sell) options exclusively in neutral-to-bearish trades. Unfortunately, real life is not that simple because it's possible that more complex investment strategies are being deployed.

For example, a trader could have sold a put option, effectively gaining a positive exposure to Bitcoin above a specific price. Consequently, there's no easy way to estimate this effect, so the simple analysis above is a good guess.

As things currently stand, bears have absolute control of the Oct. 1 expiry and they have a few good reasons to keep pressuring the price below $43,000.

Unless some unexpected buying pressure comes out over the next 12 hours, the amount of capital required for bulls to force the market above the $45,000 threshold seems immense and unjustified.

On the other hand, bears need a 5% negative price swing that takes BTC below $41,000 to increase their lead by $35 million. So this move also shows little return for the amount of effort required.

The bull's only hope resides in some surprise positive newsflow for Bitcoin price ahead of Oct. 1 at 8:00 am UTC. If any sensible action is bound to occur, it will likely take place during the weekend, when there's less active flow.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Trump Authorizes US Government To Explore Strategies for Actively Purchasing Bitcoin