Bitcoin (BTC) has traded in a bearish pattern since the strong rejection of $ 53,000 on Sept. 7 and the liquidation of futures contracts valued at $ 3.4 billion related to China’s trading ban. Cryptocurrencies appear to have seriously affected the morale of traders.
To add to the negative sentiment, major crypto exchanges like Binance and Huobi have suspended some services in mainland China, and several of the largest Ethereum mining pools, such as Spark pool and Bee pool, they were forced to cease operations.
By looking at the graph above, it is possible to understand why buyers placed 80% of their bets at $ 44,000 or more. However, the past two weeks have definitely seen these call options rapidly depreciating in value.
On September 25th The People’s Bank of China (PBoC) has banned cryptocurrencies across the country, preventing companies from conducting financial transactions and providing services to market participants. The news sparked an 8% drop in Bitcoin price, along with a wider retreat in altcoins.
The bearish sentiment was confirmed after Tesla CEO Elon Musk expressed support for the cryptocurrency at the California Code Conference.
“I think it is not possible to destroy cryptocurrencies, but it is possible for governments to slow their progress.”
Had we been in a neutral to bullish market, these comments would likely have reversed the negative trend. For example, on July 21, Elon Musk said that Bitcoin had already reached its benchmark in renewable energy. As a result, the price of Bitcoin, which had fallen 12% in ten days, reversed the movement and rose 35% over the next ten days.
The October 1st expiration will be a test of strength for the bulls, as any price below $ 42,000 means a bloodbath with absolute dominance of put options.
Initially, the $ 285 million bullish-neutral instruments dominated the weekly maturity by 21% compared to the $ 320 million put options.
The 1.21 put / call ratio is misleading, however, as excessive bullish optimism could ruin most of your bets if the price of Bitcoin stays below $ 43,000 at 8:00 a.m. UTC on Friday.
After all, what good is the right to purchase Bitcoin at $ 50,000 if it trades below that level?
The cops were surprised
66% of put options where the buyer has the right to sell Bitcoin at a preset price opened at $ 42,000 or less. These bearish neutral instruments will lose their value if Bitcoin trades above this price on Friday morning.
Below are the four most likely scenarios that take into account the current price level. The imbalance favoring one side or the other represents the potential gain on maturity.
The data shows how many contracts are available on Friday based on the expiry price.
- Between $ 40,000 and $ 41,000: 110 call options vs. 4,470 put options. Net income is USD 175 million in favor of downside hedging instruments.
- Between $ 41,000 and $ 43,000: 640 call options versus 4,000 put options. The net result still speaks for the bears at $ 140 million.
- Between $ 43,000 and $ 45,000: 1,780 call options versus 2,070 put options. The net result is balanced between bears and bulls.
- Over USD 45,000: 2,530 call options versus 1,090 put options. Net income shifts $ 65 million in favor of the cops.
This gross estimate takes into account the call options used in bullish strategies and the put options only in neutral or bearish operations. Unfortunately, real life is not that simple as more complex investment strategies can be used.
For example, a trader could have sold a put option, effectively getting a positive exposure to Bitcoin above a certain price. As a result, there is no easy way to gauge this effect, so the simple analysis above is a good guess.
As it is today the bears have absolute control over the October 1st expiration and have good reason to keep the price below $ 43,000.
Unless there is unexpected buying pressure in the next 12 hours, the amount of capital the bulls need to push the market above $ 45,000 appears immense and unjustified.
Secondly, the bears need a 5% negative price swing that brings BTC below $ 41,000 to expand its lead by $ 35 million. This movement shows little consideration for the effort required.
The only hope for the bulls is positive news flow for Bitcoin price before October 1st at 8:00 a.m. UTC. If any meaningful action occurs, it will likely take place on the weekend when there is less active flow.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you will need to do your own research when making a decision.