Can BTC hold the $26,000 support level? $1.9 billion BTC monthly options will tell you.

Will BTC hold $26,000 support? $1.9bn monthly BTC options will reveal.

Author: Marcel Pechman, Cointelegraph; Translation: Song Xue, LianGuai

The $1.9 billion Bitcoin monthly options expiring on August 25th will determine whether the support level of $26,000 can hold. The recent cryptocurrency market sell-off can be attributed to the US Securities and Exchange Commission’s (SEC) decision to delay on-spot Bitcoin exchange-traded funds (ETFs), but there is also a macroeconomic perspective.

If the Federal Reserve’s efforts to curb inflation are successful, the trend of a stronger US dollar may continue.The US Dollar Index (DXY), which measures the US dollar against other currency exchange rates, reached its highest level in 76 days on August 22nd, which is quite evident.

In order to prevent potential losses of $380 million from the expiration of monthly Bitcoin options, Bitcoin bulls must ensure that the Bitcoin price trades above $27,000 before August 25th.

• Due to macroeconomic factors, the inflow of risk capital into cryptocurrencies further declined.
• Why did the cryptocurrency market decline this week?
• Returning to ‘Common Sense’ Rationally Examining the ‘Truth’ of Crypto

Bitcoin bears face severe regulatory threats

Cryptocurrency bulls have recently encountered regulatory challenges. This is evident as the two largest cryptocurrency exchanges, Binance and Coinbase, are currently involved in lawsuits with the SEC. Additionally, Ripple’s preliminary victory against the SEC is now being appealed by regulatory agencies.

In addition to these developments, Bitstamp recently announced its decision to cease providing custody services to US customers. A key issue in the current regulatory environment in the US is whether Ethereum is considered a commodity or a security.

Furthermore, Binance has announced the suspension of crypto debit card services in Latin America and the Middle East. Prior to this decision, there were allegations that Binance also suspended Euro withdrawals and deposits via SEPA on August 20th, with no clear timeline for the resumption of this service.

Data shows Bitcoin bulls are overly optimistic about the price

The open interest of options expiring on August 25th amounts to $1.9 billion. However, since some traders expect the price levels to reach $29,000 or even higher, the final amount is expected to be reduced. From August 14th to August 19th, Bitcoin price unexpectedly experienced a 12% correction, catching bullish investors off guard, which is clearly shown in the Bitcoin options rate chart from Deribit.

Total open interest of Bitcoin options expiring on August 25th. Source: Deribit

The ratio of put options to call options at 0.56 reflects the imbalance between $1.2 billion in bullish (buy) open interest and $685 million in bearish (sell) options. However, if the Bitcoin price remains around $26,500 at 8:00 am (Coordinated Universal Time) on August 25th, these bullish (buy) options will only have a value of $35 million. The reason for this discrepancy is that if BTC trades below this level at expiration, buying Bitcoin at $27,000 or $28,000 will be useless.

The target of Bitcoin shorts is below $26,000 to maximize profits

Here are four of the most likely scenarios based on the current price trend. The number of option contracts for call (buy) and put (sell) tools available on August 25th varies depending on the expiration price. The imbalance favoring both parties constitutes theoretical profit.

This rough estimate ignores more complex investment strategies. For example, traders can sell call options to effectively obtain a negative exposure to Bitcoin above a specific price. Unfortunately, there is no simple way to evaluate this impact.

Between $25,000 and $26,000: 100 lots of call options and 15,100 lots of put options. The final result favors the put tools with $380 million.

Between $26,000 and $27,000: 1,400 call options and 11,000 put options. The final result favors the put tools with $250 million.

Between $27,000 and $28,000: 4,000 call options and 8,400 put options. The final result favors the put tools with $110 million.

Between $28,000 and $29,000: 6,000 call options and 5,300 put options. The final result is balanced between call options and put options.

Please note that in order to create a fair competitive environment for longs before expiration each month, they must increase the price by 6% from $26,400. In contrast, shorts only need a slight adjustment of 2% below $26,000 to gain an advantage of $380 million on August 25th.

Given that Bitcoin broke below the support level of $26,000 multiple times from August 21st to August 23rd, it would not be surprising if this level is tested again before the expiration of the options. Additionally, considering the current cryptocurrency regulatory environment, Bitcoin longs have little incentive to reverse the current bearish trend after the expiration of $1.9 billion options on a monthly basis.

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