With $655 million worth of bitcoin options expiring on Friday, bitcoin bulls are targeting $50,000
Bitcoin (BTC) failed to break the key psychological $50,000 barrier on Aug. 23 and has since retested the $47,000 support level. If historical data has an impact on bitcoin prices, September has shown a negative performance in four of the last five years.
Cointelegraph contributor and market analyst Michaël van de Poppe recently said that an ethereum (ETH) break above $3,500 could be an indicator that Bitcoin is starting its next bull market, with ethereum now trading at $3,700 and traders anxiously awaiting the next move in BTC.
El Salvador’s bitcoin law is set to take effect on September 7, and bulls may be excited about it. In addition, the $150 million bitcoin trust fund recently approved by El Salvador’s legislative assembly is another potential positive.
The money will be used to support the installation of government-backed cryptocurrency ATMs and provide incentives to encourage the adoption of Chivo, a government-backed digital wallet.
Coinbase also saw a large outflow of bitcoin this week after a period of relative stability. The move brought the exchange’s balance below 700,000 BTC, a figure last seen in December 2017. These moves are typically considered bullish, as they signal that holders are unlikely to sell bitcoin in the near term.
Bitcoin Options Accumulated Open Positions on September 3 Source: Bybt.com
The September 3 expiration date will be a test of long power, as 93% of the $390 million in call (buy) options are at strikes of $48,000 or higher.
In addition, these neutral-to-call options accounted for 48% of the advantage at expiration compared to the $265 million in protected puts.
However, the 1.48 call-to-call ratio is deceptive because if the bitcoin price remains below $48,000 at 8:00 a.m. (UTC) on Friday, then the longs’ overoptimism could wipe out most of their bets. After all, what good is it to buy bitcoin at $52,000 if it is trading below $52,000?
The shorts are also spooked
78% of puts (the right for a buyer to sell bitcoin at a pre-determined price) are priced at $46,000 or less. If Bitcoin trades above that price on Friday morning, these neutral to put options will become worthless.
Here are the four most likely scenarios considering current price levels An imbalance in favor of either side represents a potential profit upon expiration.
Between $45,000 and $46,000: 140 calls versus 1,220 puts. The net result is $48,000,000 in favor of protective puts.
Between $46,000 and $48,000: 590 calls versus 735 puts. The net result is a balance between long and short positions.
Between $48,000 and $50,000: 1,930 calls versus 120 puts. The net result is $88,000,000 in favor of call options.
Above $50,000: 3,310 calls versus 0 puts. The net result is $165 million worth of calls completely favoring the calls.
The above data shows how many contracts will be in effect on Friday, depending on the expiration price.
This rough estimate takes into account call (buy) options used in a bullish strategy and put (sell) options used in a neutral to bearish trade. Unfortunately, real life is not so simple, as investors may be deploying more complex investment strategies.
For example, a trader may sell a put option, effectively gaining positive exposure to bitcoin above a specific price. That said, there is still no simple way to measure this impact, so the simple analysis above is a best guess.
Incentives are in place to encourage longs to try to break $50,000
These two competing forces will show their strength, while the shorts will try to minimize their losses. On the other hand, if the bitcoin price stays above $48,000, the bulls have little control over the situation.
The most important test will be $50,000, as the bulls have a lot of incentive to eliminate every protected put option and gain a $165 million advantage.
The only hope for the shorts lies in some unexpected regulatory news or a negative outcome for the bitcoin price from the September 2 U.S. unemployment benefits data.
While there is still room for further volatility ahead of the expiration date, the bulls appear to have the edge.
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