Options Data Shows Bitcoin’s Short-Term Uptrend Is Threatened If BTC Falls Below $23,000

Bitcoin (BTC) briefly surged above $25,000 on August 15, but the excitement lasted less than an hour and was followed by a 5% retracement over the next five hours. The resistance level proved more difficult than expected, but may have given the bulls false hope for the upcoming weekly $335 million options expiry.

Fleeting investor optimism returned to a seller’s market on August 17 after BTC emptied and tested the $23,300 support. The negative move came hours before the release of the Federal Open Markets Committee (FOMC) minutes from its July meeting. Investors expect to know whether the Federal Reserve will continue to raise interest rates.

The negative news flow accelerated on August 16 after a United States federal court authorized the United States Internal Revenue Service (IRS) to force cryptocurrency broker SFOX to reveal the transactions and the identity of customers who are US taxpayers. The same strategy was used to obtain information from Circle, Coinbase and Kraken between 2018 and 2021.

This move explains why betting Bitcoin price above $25,000 on Aug. 19 seemed like a sure thing a few days ago, and it would have prompted bullish betting.

Bears did not expect BTC to break above $24,000

Open interest for the August 19 options expiration is $335 million, but the actual figure will be lower as the bears were too bullish. These traders may have been fooled by the short-lived dump at $22,700 on August 10, as their bets for the August options expiration extend to $15,000.

Bitcoin options aggregate open interest for August 19. Source: Coinglass

The call-to-put ratio of 1.29 shows the difference between the call open interest of $188 million and the put options of $147 million. Currently, Bitcoin stands near $23,300, which means that most bullish bets are likely to become worthless.

If the Bitcoin price breaks below $23,000 at 8:00 UTC on August 19, only $1 million of these call options will be available. This difference occurs because a right to buy Bitcoin at $23,000 is useless if BTC is trading below this level at expiry.

There is still hope for bulls, but $25,000 seems a long way off

Below are the three most likely scenarios based on the current price action. The number of option contracts available on August 19 for buy (bullish) and sell (bearish) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical gain:

  • Between $21,000 and $23,000: 30 calls versus 2,770 puts. The net result favors the put (bear) instruments by 60 million dollars.
  • Between $23,000 and $25,000: 940 calls versus 1,360 puts. The bottom line is balanced between bulls and bears.
  • Between $25,000 and $26,000: 3,330 calls versus 100 puts. The net result favors the buying instruments (bullish) by $80 million.

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: Ex-Goldman Sachs banker explains why Wall Street is getting Bitcoin wrong

Bears will try to pin Bitcoin below $23,000

Bitcoin bulls need to push the price above $25,000 on August 19 to take advantage of $80 million. On the other hand, the bears’ best-case scenario requires pressure below $23,000 to maximize their gains.

Bitcoin bulls just liquidated $144 million in leveraged futures long positions on August 16, so they should have less room to drive the price higher. That said, the bears have the upper hand to remove BTC below $23,000 ahead of the August 19 options expiration.

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.