With this week’s Bitcoin (BTC) options expiring on Friday, July 21, the $30,000 resistance level is likely to rise, giving the bears the upper hand for the first time since the 21% rally from June 14 to June 21.
Bitcoin Options Expiration Matches Volatility
A review of Bitcoin’s recent price movements shows that three of the last four BTC options expirations have caused significant price volatility, making it important for traders to pay close attention to these events.
In particular, the price of Bitcoin consistently reacts strongly after options expire at 8am UTC each week. Causality cannot be proven, but given the magnitude of these price movements, we should be very careful towards the weekly expiry on July 21st.
Bitcoin bears benefit from increased regulation
While option expirations this week may give bears more control over bitcoin prices in the short term, bulls have the potential advantage of the U.S. Securities and Exchange Commission reviewing spot-listed fund proposals.
These proposals are still in the early stages of regulatory scrutiny, but the slow progress could partly explain why the bears have defended $31,000 multiple times since late June.
But the biggest chance to keep the price of Bitcoin below $30,000 lies in a deteriorating regulatory environment. On July 19, global stock exchange Nasdaq suspended the launch of its crypto custodian solution, citing a lack of regulatory clarity in the United States. The change in plans was justified by Nasdaq CEO Adena Friedman.
Related: Bipartisan Bill to Regulate DeFi and Cryptocurrency Security Risks Heads to US Senate
Additionally, on July 14, cryptocurrency exchange Coinbase announced that it would suspend staking services for customers in California, New Jersey, South Carolina, and Wisconsin. The decision follows a lawsuit filed by the SEC on June 6, alleging that the exchange has been operating as an unregistered securities broker since 2019.
Bitcoin Bulls’ Excessive Optimism Leads to Disappointing Results
Bitcoin’s price briefly crossed $31,000 on July 13 and 14, prompting bullish bets from traders using option contracts. However, a four-hour adjustment brought the price down to $30,000.
A put-to-call ratio of 0.39 reflects the difference between the open interest of $430 million of call options and $170 million of put options. However, the bulls were overconfident and the result will be lower than the $600 million total open interest.
For example, if the Bitcoin price is trading at $30,500 on July 14th at 8:00 am UTC, the call option is only $18 million. This distinction stems from the fact that if BTC trades below these levels at expiration, the right to buy Bitcoin at $31,000 or $32,000 will be voided.
Below are the three most likely scenarios based on current price movements. The number of option contracts available for call (buy) and put (sell) products on July 21 depends on the expiry price. An imbalance in favor of each side constitutes a theoretical profit.
- Between $28,000 and $30,000: 100 calls versus 2,400 puts. The net result is a $70 million advantage in the put product.
- Between $30,000 and $31,000: 600 calls versus 1,800 puts. The net result is a $35 million advantage in the put product.
- Between $31,000 and $32,000: 3,100 calls versus 1,400 puts. The end result is a call (buy) product that gives him a $55 million advantage.
Given the recent weak macroeconomic data, the bears are likely to keep bitcoin prices in check until Friday’s deadline. Moreover, China’s gross domestic product (GDP) grew 6.3% year-on-year in the second quarter, below market expectations of 7.3%. Meanwhile, U.S. retail sales rose 0.2% in June, below consensus of 0.50%.
As a result, the bulls find themselves in a difficult position as the call product becomes invalid once Bitcoin expires below $30,000. So, while the bears’ favorable outcome of $35 million may not be a big win, it does increase the likelihood that $30,000 will become a new resistance area.
This article is for general informational purposes and is not intended, nor should it be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views or opinions of Cointelegraph.
