Heres why holding $20.8K will be critical in this weeks $1B Bitcoin options expiry

Bitcoin (BTC) experienced a correction of 16.5% between Aug 15 and Aug 19 as it tested the $20,800 support. This drop is surprising, but in reality, the $4,050 price difference is relatively insignificant, especially considering Bitcoin’s 72% annualized volatility.

The S&P 500 is currently at 31% volatility, which is significantly lower, but the index fell 9.1% between June 8th and June 13th. historical risk indicators.

Earlier this week, crypto investor sentiment soured after the central bank cut the prime rate for five-year loans on Aug. 21 due to a weakening China’s property market. In addition, Goldman Sachs investment banking strategists said inflationary pressures will cause the US Federal Reserve to further tighten the economy, hurting the S&P 500.

Regardless of the correlation between stocks and Bitcoin, which is currently trading at 80/100, investors tend to take refuge in US dollars and inflation-protected bonds when they fear crises or market crashes. Known as flight to quality, it tends to put selling pressure on all risk markets, including cryptocurrencies.

Bitcoin failed to break below the $20,800 support despite the bears’ best efforts. The move explains why the maturity of his $1 billion Bitcoin monthly option on Aug. 26 will benefit the bulls despite his 16.5% loss over the last five days. doing.

Most bull bets are above $22,000

Bitcoin’s sharp correction after failing to break the $25,000 resistance on Aug. 15 took the bulls by surprise. This is because only 12% of his monthly expiration call (purchase) options are above $22,000. Bitcoin bears are therefore well positioned even with low bet numbers.

A wider view using the 1.25 call-to-put ratio shows a more bullish bet as the call (buy) open interest is $560 million against the $450 million put (sell) option . Nonetheless, with Bitcoin currently below $22,000, most bullish bets could be worthless.

For example, if the Bitcoin price falls below $22,000 on August 26th at 8:00 AM UTC, only $34 million worth of these put (sell) options will be available. The difference arises because if Bitcoin trades above $22,000 at expiry, he will no longer be entitled to sell it below $22,000.

Bulls could secure a profit of $160 million

Below are the four most likely scenarios based on the current price action. The number of call (bullish) and put (bearish) option contracts available on August 26 depends on the expiry price. An imbalance in favor of both sides constitutes a theoretical gain.

• $20,000 – $21,000: 1,100 calls versus 8,200 puts. Net earnings favor the bears at $140 million.
• $21,000 – $22,000: 1,600 calls versus 6,350 puts. The net result is $100 million in favor of the bears.
• $22,000 – $24,000: 5,000 calls versus 4,700 puts. The net result is balanced between bullish and bearish.
• $24,000 – $25,000: 7,700 calls and 1,000 puts. The net result favors the bulls by $160 million.

This rough estimate takes into account call options used in bullish bets and put options used in neutral to bearish trades only. Yet this oversimplification ignores more complex investment strategies.

Holding $20,800 is key, especially after the bulls liquidate in the futures market

Bitcoin bulls should push the price above $22,000 on August 26 to balance the scale and avoid a potential $140 million loss. However, bitcoin bulls aren’t looking to push the price higher in the short-term, as they liquidated their $210 million worth of leveraged futures long positions on Aug. 18.

That said, the most likely scenario on Aug. 26 is in the $22,000 to $24,000 range, offering a balanced result between bullish and bearish.

If the bears show some strength and BTC loses the critical $20,800 support, the $140 million loss at monthly expiration would be the least of their problems. In addition, the move nullifies his July 26th previous low of $20,800, effectively breaking the seven-week uptrend.

The views and opinions expressed herein are solely author It does not necessarily reflect the views of Cointelegraph. All investment and trading movements involve risk. You should do your own research when making a decision.