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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.

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.

Do Bitcoin halvings spark BTC price rallies, or is it US Treasurys?

September 26, 2023 Coin Telegraph

Bitcoin

An intriguing chart shows a close relationship between U.S. 10-year Treasurys and Bitcoin halving price rallies.

The relationship between Bitcoin’s price and U.S. Treasury yields has long been considered a strong indicator due to historical data and the underlying rationale.

Bitcoin halvings vs. 10-year Treasury yields

In essence, when investors turn to government-issued bonds for safety, assets like Bitcoin (BTC), which are considered risk-on, tend to perform poorly.

A noteworthy chart shared by TXMC on X (formerly known as Twitter) makes the argument that Bitcoin halvings have coincided with “relative local lows” in the 10-year Treasury yield. Despite the questionable use of the term “relative,” which doesn’t precisely match a three-month low, it’s still worth examining the macroeconomic trends surrounding past halvings.

#BTC halvings have coincidentally arrived at local lows in treasury yields each of the first 3 times. After these moments, risk assets rose broadly while growth expectations also improved.

Thus a myopic Bitcoin narrative about supply shocks was born. But it was always macro. pic.twitter.com/KGQ4TMeKWC
— (@TXMCtrades) September 18, 2023

First and foremost, it’s important to emphasize that the author asserts that the correlation should not be taken as a “direct causal link between yields and BTC price.” Furthermore, TMXC argues that over 92% of Bitcoin’s supply has already been issued, suggesting that daily issuance is unlikely to be the factor “propping up the asset’s price.”

Could the 10-year yield chart be useful vs. Bitcoin?

First, it’s essential to recognize that human perception is naturally inclined to spot correlations and trends, whether real or imaginary.

For instance, during Bitcoin’s first halving, the 10-year yield had been steadily rising for four months, making it challenging to label that date as a pivotal moment for the metric.

*U.S. government bonds 10-year yield, 2012. Source: TradingView*

One might give some benefit of the doubt since, in fact, leading up to Nov. 28, 2012, yields dipped below 1.60%, a level not seen in the previous three months. Essentially, after the first Bitcoin halving, fixed-income investors chose to reverse the trend by selling off Treasurys, thereby pushing yields higher.

However, the most intriguing aspect emerges around Bitcoin’s third halving in May 2020, in terms of the “relative” bottom of yields. Yields plunged below 0.8% approximately 45 days before the event and remained at that level for more than four months.

*U.S. government bonds 10-year yield, 2020. Source: TradingView*

It’s challenging to argue that the 10-year yield hit its lowest point near the third halving, especially when Bitcoin’s price only gained 20% in the ensuing four months. By comparison, the second halving in July 2016 was followed by a mere 10% gain over four months.

Consequently, attempting to attribute Bitcoin’s bull run to a specific event with an undefined end date lacks statistical merit.

Therefore, even if one concedes the idea of “relative” local lows on the 10-year yield chart, there’s no compelling evidence that Bitcoin’s halving date directly impacted its price, at least in the subsequent four months.

While these findings don’t align with TMXC’s hypothesis, they raise an interesting question about the macroeconomic factors at play during actual Bitcoin price rallies.

No Bitcoin rally is the same, regardless of the halving

Between Oct. 5, 2020 and Jan. 5, 2021, Bitcoin saw a remarkable 247% increase in its value. This rally occurred five months after the halving, prompting us to question what notable events surrounded that period.

For instance, during that time, the Russell 2000 Small-Capitalization index outperformed S&P 500 companies by a significant margin, with a 14.5% difference in performance.

*Russell 2000 small-cap index relative to the S&P 500 (blue, right) vs. Bitcoin/USD (orange, left). Source: TradingView*

This data suggests that investors were seeking higher-risk profiles, given that the median market capitalization of Russell 2000 companies stood at $1.25 billion, significantly lower than the S&P 500's $77.2 billion.

Consequently, whatever drove this movement, it appears to have been associated with a momentum toward riskier assets rather than any trends in Treasury yields four months prior.

In conclusion, charts can be misleading when analyzing extended time periods. Linking Bitcoin’s rally to a solitary event lacks statistical rigor when the upswing generally initiates three or four months after the said event.

This underscores the need for a more nuanced understanding of the cryptocurrency market, one that acknowledges the multifaceted factors influencing Bitcoin’s price dynamics rather than relying solely on simplistic correlations or isolated data points.

US Treasury yields are rising — What does it mean for Bitcoin price?

June 25, 2023 Coin Telegraph

Coin Telegraph

The 5-year U.S. Treasury yield reached its highest level in 3 months, but the typical inverse correlation-based price action with Bitcoin might not work this time.

United States Government bonds, or Treasurys, have a tremendous influence across all tradeable markets, including Bitcoin (BTC) and Ether (ETH). In that sense, risk calculation in finance is relative, so every loan, mortgage and even cryptocurrency derivatives depend on the cost of capital attributed to U.S. dollars.

Assuming the worst-case scenario of the U.S. government eventually defaulting on its own debt, what happens to the families, businesses and countries holding those bonds? The lack of interest debt payments would likely cause a global shortage of U.S. dollars, triggering a cascading effect.

But, even if that scenario comes to fruition, history shows us that cryptocurrencies may work as a hedge during periods of uncertainty. For instance, Bitcoin vastly outperformed traditional wealth preservation assets during the U.S.-China trade war in May 2021. Bitcoin gained 47% between May 5 and May 31, 2021, while the Nasdaq Composite shed 8.7%.

As the general public owns over $29 trillion in the U.S. Treasury, they are deemed the lowest risk in existence. Still, the price for each of those government bonds, or the yield traded, will vary depending on the contract maturity. Assuming there’s no counterparty risk for this asset class, the single most important pricing factor is the inflation expectation.

Let’s explore whether Bitcoin’s and Ether’s price will be impacted by the growing demand for U.S. Treasurys.

Higher demand for government bonds leads to lower yields

If one believes that inflation will not be restrained anytime soon, this investor is likely to seek a higher yield when trading the Treasury. On the other hand, if the U.S. government is actively devaluing its currency or there's an expectation for additional inflation, investors will tend to seek refuge in US Treasurys, causing a lower yield.

*U.S. 5-year government bond yield. Source: TradingView*

Notice how the 5-year Treasury yield reached 4.05% on June 22, the highest level in more than three months. This movement happened while the U.S. Consumer Price Index (CPI) for May came in at 4.0% on a year-over-year basis, the lowest growth since March 2021.

A 4.05% yield indicates that investors are not expecting inflation to drop below the central bank's 2% target anytime soon, but it also shows confidence that the 9.1% peak CPI data from June 2022 is behind us. However, that’s not how Treasury pricing works because investors are willing to forego rewards in exchange for the security of owning the lowest-risk asset.

U.S. Treasury yields are a great tool for comparing other countries and corporate debt, but not in absolute terms. These government bonds will reflect inflation expectations, but they may be severely constrained if a global recession becomes more likely.

*U.S. 5-year government bond yield vs. Bitcoin/USD (orange). Source: TradingView*

The typical inverse correlation between Bitcoin and the U.S. Treasury yield has been invalidated in the past 10 days, most likely because investors are desperately buying government bonds for their safety regardless of the yield being lower than inflation expectations.

The S&P 500 index, which measures the U.S. stock market, hit 4,430 on June 16, just 7.6% below its all-time high, which also explains the higher yields. While investors typically seek scarce and inflation protected assets ahead of turbulent times, their appetite for excessive equity valuations is limited.

Recession risks could have distorted the yield data

The only certain thing at the moment is that investors’ expectations for a recession are becoming more evident. Aside from the Treasury's yield, the U.S. Conference Board's leading indicators declined for 14 consecutive months, as described by Charlie Bilello:

The Conference Board's Leading Economic Index declined in May for the 14th month in a row.

"We project that the US economy will contract over the Q3 2023 to Q1 2024 period. The recession likely will be due to continued tightness in monetary policy and lower government spending.”… pic.twitter.com/wQfy8a3DVq
— Charlie Bilello (@charliebilello) June 23, 2023

Consequently, those betting that Bitcoin’s recent decoupling from the U.S. Treasury's yield inverse correlation will quickly revert might come out disappointed. Data confirms that government bond yields are higher than normal due to increased expectations of a recession and economic crisis ahead.

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.

The Fed has little ammo left as $30K Bitcoin price becomes key battle line

May 3, 2023 Coin Telegraph

Bitcoin Price

BTC options and futures markets show no use of excessive leverage from buyers, a healthy indicator as the $28,000 support gets retested.

The Bitcoin price successfully defended the $28,000 support on May 2, but it has yet to prove the strength needed to reclaim the $29,200 level from April 30.

$30K becomes crucial for Bitcoin bulls

Some analysts will pin the recent downtrend on the expectation of an interest rate increase by the United States Federal Reserve on May 3, but in reality, the market is pricing 92% odds of a modest 25-basis-point increase to its highest level since September 2007.

$DXY up/#Bitcoin down on yesterdays PMI data release.

Market is now pricing in a very high probability of 25bps raise at tomorrows #FOMC.

This is likely mostly priced in for BTC, but the comments afterwards (more rates/pause) will likely bring the volatility. https://t.co/H5qtGpd8gA pic.twitter.com/BmdsNRtb1f
— Decentrader (@decentrader) May 2, 2023

As the market intelligence platform Decentrader pointed out, the comments from Fed chairman Jerome Powell are more likely to bring surprise elements, either pointing to further measures to slow down the economy or signaling higher odds of the terminal interest rate being close to 5%. Powell is set to hold a press conference at 2:30 pm Eastern Time.

From an employment perspective, the central bank has reason to believe that the market continues to be overheated. The U.S. government reported 1.6 job openings for every unemployed worker in March. Moreover, according to the “ADP National Employment Report” released on May 3, private payrolls increased by 296,000 jobs in April, well above the 148,000 market consensus.

However, raising interest rates has negative consequences for families and small businesses in particular. Financing and mortgages become more costly, while investing in fixed income becomes more attractive. Such an undesired effect of curbing inflation could further shake the core of the financial system as shown by the latest bank failure, this time of First Republic Bank.

Therefore, an eventual Bitcoin (BTC) price breakthrough above $30,000 could be a definitive sign of investors’ perception shifting from seeing Bitcoin as a risk asset to a scarce digital asset that directly benefits from a weaker traditional banking system.

But to gauge whether Bitcoin’s resilience above $28,000 is sustainable, an investor must analyze if excessive leverage has been used by buyers and whether professional traders are pricing higher odds of a market downturn using BTC derivatives.

Bitcoin futures show low demand from leverage buyers

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, 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 two-month futures annualized premium. Source: Laevitas*

The data suggests Bitcoin traders have been extra cautious over the past couple of weeks. Even as the BTC price flirted with $30,000 on April 26, there were no signs of demand for leveraged longs.

Moreover, the Bitcoin futures premium has stagnated near 2% since April 23, suggesting that buyers are unwilling to use leverage, which is healthy for the market. By avoiding futures contract exposure, it greatly reduces the risk of large liquidations during negative Bitcoin price moves.

Bitcoin options traders remain neutral

The Bitcoin options market can also help a trader understand whether a recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign 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 60-day options 25% delta skew. Source: Laevitas*

The option delta's 25% skew has shown balanced demand between call and put options for the past four weeks. That should come as a surprise given that the Bitcoin price rallied 10% between April 25 and April 30, when it last tested the $30,000 resistance.

Consequently, Bitcoin options and futures markets suggest that professional traders are not placing their chips on the BTC price breaking above $30,000 anytime soon. On the other hand, those whales are pricing in similar odds of surprise positive and negative moves.

Ultimately, given that the Fed clearly has a limit to raising interest rates without causing a recession, Bitcoin’s price should be positively impacted, regardless of the decision on May 3.

Fed chair Powell will ultimately force the U.S. Treasury to inject more money into the economy to contain the banking crisis, which will be beneficial for a scarce asset such as Bitcoin.

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.

Risk

BTC price faces serious headwinds

Bitcoin bulls too optimistic?

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

Bitcoin halvings vs. 10-year Treasury yields

Could the 10-year yield chart be useful vs. Bitcoin?

No Bitcoin rally is the same, regardless of the halving

Higher demand for government bonds leads to lower yields

Recession risks could have distorted the yield data

Financial crisis could fuel Bitcoin’s price increase

How to apply the risk reversal strategy in Bitcoin

Investors are protected down to $25,000

$30K becomes crucial for Bitcoin bulls

Bitcoin futures show low demand from leverage buyers

Bitcoin options traders remain neutral

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