Bitcoin Price Falls Below $28,000: Possible Scenarios for BTC Options

• Friday’s expiration of $580 million worth of Bitcoin options supports bears. They could make a profit of $140 million on August 18th and increase downward pressure on Bitcoin.
• On August 16th, Federal Reserve Chairman Jerome Powell emphasized the 2% inflation target. This pushed the US 10-year Treasury yield to its highest level since October 2007.
• Concerns about the Chinese economy may have also contributed to the decline. The country reported lower-than-expected retail sales growth and fixed asset investment, which could affect the demand for cryptocurrencies.

The Bitcoin price dropping below $28,000 has raised concerns; what are the possibilities for the expiring Bitcoin options on Friday?

Bitcoin Falls Below $28,000 with a Sudden Drop

On August 16th, Bitcoin closed below $29,000 for the first time in 56 days. Analysts pointed to inflation concerns and the need to raise interest rates as the most likely reasons, citing this week’s Federal Open Market Committee meeting minutes.

However, the expiration of $580 million worth of Bitcoin options on Friday supports bears. They could make a profit of $140 million on August 18th and increase downward pressure on Bitcoin, making the search for a bottom more complicated.

On August 16th, Federal Reserve Chairman Jerome Powell emphasized the 2% inflation target. This pushed the US 10-year Treasury yield to its highest level since October 2007 and directed investors towards cash positions and well-prepared companies rather than risky assets like cryptocurrencies.

Specifically, before the release of the Fed minutes, Bitcoin had already dropped to its lowest level in 9 days at $29,000. The impact of the minutes was limited, especially as the 10-year yield was rising and there were doubts about the Fed’s ability to control inflation.

Additionally, on August 17th, S&P 500 index futures only dropped by 0.6% compared to the previous levels on August 16th. At the same time, WTI crude oil increased by 1.7% and gold decreased by 0.3%.

It can be said that concerns about the Chinese economy may have also contributed to the decline. The country reported lower-than-expected retail sales growth and fixed asset investment, which could affect the demand for cryptocurrencies. While the exact reasons for the price drop are uncertain, there is a possibility that Bitcoin could reverse its trend after the weekly option expiration on August 18th.

Bitcoin Bulls Made a Mistake

Between August 8th and 9th, the Bitcoin price briefly rose above $29,700, creating optimism among traders using option contracts. The 0.57 put-to-call ratio reflects the difference in open positions between $365 million worth of call options and $205 million worth of put options. However, since the bulls were caught off guard by the price dropping below $29,000, the result will be lower than the total open position of $570 million.

For example, if the price of Bitcoin is trading at $28,400 at 8:00 AM UTC on August 18th (11:00 AM Turkish time), only $3 million worth of call options will be considered. This difference is due to the invalidation of the right to buy Bitcoin at levels below that price, such as $27,000 or $28,000.

Based on the current price movement, the most likely three scenarios are as follows. The number of current option contracts for call and put instruments will vary depending on the expiration price. The balance that favors both sides creates the theoretical profit:

• Between $26,000 and $28,000: 100 call options and 5,300 put options. The net result will favor $140 million worth of put instruments.
• Between $28,000 and $28,500: 100 call options and 3,900 put options. The net result will favor $60 million worth of put instruments.
• Between $28,500 and $29,500: 600 call options and 1,300 put options. The net result will favor $20 million worth of put instruments.

Considering the increasing concerns among investors about central banks’ measures to control inflation, it is likely that Bitcoin bears will continue to benefit. This trend is not limited to the upcoming expiration on Friday and is expected to continue, especially since the chances of approving a spot exchange-traded fund, which is the primary short-term target for Bitcoin bulls, are quite low.

As a result, those on the side of the bulls are in a difficult situation. The success of call options depends on Bitcoin’s final price rising above $28,500. The most likely scenario indicates that bears could leave with a positive result of $140 million and show that there is further potential for correction in Bitcoin’s price.