Bitcoin (BTC) briefly breached $25,000 on Aug. 15, but the excitement lasted less than an hour before retracing 5% over the next five hours. The resistance turned out to be stronger than expected, but may have given bulls false hopes for the upcoming $335 million weekly options expiration.
On Aug. 17, after BTC, investors’ brief optimism returned to a seller’s market sell-off and a test of support at $23,300. The negative move came hours before the release of minutes from the Federal Open Market Committee (FOMC) July meeting. Investors are looking forward to some insight on whether the Fed will continue to raise interest rates.
On Aug. 16, a U.S. federal court authorized the Internal Revenue Service (IRS) to compel cryptocurrency broker SFOX to disclose the transactions and identities of customers who are U.S. taxpayers. The same strategy was used to obtain information from Circle, Coinbase, and Kraken between 2018 and 2021.
This movement explains why betting on Bitcoin over $25,000 on August 19 seems like a sure thing. A few days ago, this would incentivize bullish bets.
Shorts do not expect BTC to exceed $24,000
August open interest. 19 options expire at $335 million, but the actual number will be lower as the bears are overly optimistic. Those traders may have been fooled by a brief sell-off to $22,700 on Aug. 10, as their bets on the August options expiration fell to $15,000.
Bitcoin Options aggregates open interest for August 19. Source: Coinglass
1.29 call-to-put ratio shows the difference between $188 million in call (buy) open interest and $147 million in put (sell) options. Currently, Bitcoin is near $23,300, which means that most bullish bets could become worthless.
If the price of Bitcoin falls below $23,000 at 8:00AM UTC on August 19th, only a $1 million worth (buy) option of these call options will be available. The discrepancy arises because the right to buy Bitcoin at $23,000 will be useless if BTC trades below that level at expiration.
There is still hope for the bulls, but $25,000 seems out of reach
Here are the three most likely scenarios based on current price action. The number of options contracts for call (bull) and put (bear) instruments available on August 19 varies by expiration price. The imbalance in each party’s favor constitutes the theoretical profit:
This rough estimate is only Puts used in put bets and calls used in neutral-to-call trades are considered. Even so, this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a certain price, but unfortunately there is no easy way to estimate this effect.
Related: Ex-Goldman Sachs Banker Explains Why Wall Street Misjudged Bitcoin
Bears will try to fix Bitcoin below $23,000
Bitcoin bulls would need to push the price above $25,000 on Aug. 19 to make a profit of $80 million. On the other hand, a best-case scenario for the bears would require pressure below $23,000 to maximize their gains.
Bitcoin bulls just liquidated a $144 million long leveraged futures position on Aug. 16, so they should have lower profits to push prices higher. That being said, the bears are holding BTC below $23,000 ahead of the options expiration date on Aug. 19.
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