Volumes

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.

Related: Crypto bills could be delayed as many prepare for US gov’t shutdown

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.