Bitcoin (BTC) crashed below $19,000 on September 6, dragging the price to an 80-day low. The move not only completely erased the entirety of the 32% gains accumulated from July to August 15, but it also wiped out $246 million in leveraged long (buy) futures.
Bitcoin price is down for the year, but it’s important to compare its price action with other assets. Oil prices are currently down 23.5% since July, Palantir Technologies (PLTR) is down 36.4% in 30 days and Moderna (MRNA), a pharmaceutical and biotech company, is down 30.4 % over the same period.
Inflationary pressures and fears of a global recession drove investors away from riskier assets. By taking refuge in cash, mainly in the dollar itself, this protective move pushed the 5-year yield on US Treasuries to 3.38%, approaching its highest level in 15 years. By demanding a higher premium for holding government debt, investors are signaling a lack of confidence in current inflation controls.
Data released on Sept. 7 showed Chinese exports rose 7.1 percent in August from a year earlier, after rising 18 percent in July. Additionally, German factory orders data from September 6 showed a 13.6% contraction in July from a year earlier. So, until there is some decoupling from traditional markets, there is not much hope for a sustainable bull run in Bitcoin.
The bears were too optimistic
Open interest for the Sept. 9 options expiration is $410 million, but the actual figure will be lower as the bears have become overconfident. These traders did not expect $18,700 to hold because their bets were targeting $18,500 and below.
The call-to-put ratio of 0.77 reflects the imbalance between the $180 million call open interest and the $230 million put options. Currently, Bitcoin stands near $18,900, which means most bets on both sides will likely become worthless.
If Bitcoin’s price remains below $20,000 at 08:00 UTC on September 9, only $13 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $20,000 is useless if BTC is trading below that level at expiry.
Bears target $18,000 to secure $90 million profit
Below are the four most likely scenarios based on the current price action. Number of The option contracts available on September 9 for buy (bullish) and sell (bearish) instruments vary depending on the expiry price. The imbalance in favor of each side constitutes the theoretical gain:
- Between $17,000 and $18,000: 0 calls against 4,300 puts. The bears completely dominate, profiting by $130 million.
- Between $18,000 and $19,000: 0 calls against 5,050 puts. The net result favors the put (bear) instruments by 90 million dollars.
- Between $19,000 and $20,000: 700 calls versus 1,900 puts. The net result favors the put (bear) instruments by 50 million dollars.
- Between $20,000 and $21,000: 2,050 calls against 2,200 puts. The bottom line is balanced between bulls and bears.
This raw estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. Even so, this oversimplification fails to account for more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately there is no easy way to estimate this effect.
Related: Bitcoin Price Hits 10-Week Low Amid ‘Painful’ US Dollar Rally Warning
Bulls have until September 9 to ease their pain
Bitcoin bulls need to push the price above $20,000 on September 9 to avoid a potential loss of $130 million. On the other hand, the bears’ best-case scenario calls for a slight push below $18,000 to maximize their gains.
Bitcoin bulls just liquidated leveraged long positions of $246 million in two days, so they might have less margin needed to push the price higher. In other words, the bears have a head start to fix BTC below $19,000 ahead of the weekly options expiry.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.