Bitcoin Recovers After Fed Interest Rate Hike, But Bears May Still Win On Friday’s $1.76 Billion Options Expiration

Bitcoin Recovers After Fed Interest Rate Hike, But Bears May Still Win On Friday's $1.76 Billion Options Expiration

Bitcoin (BTC) price has been stuck in a descending channel since July 20 and is currently heading towards the $20,000 support by the end of July. Adding to this bearish action, BTC has lost 50% year to date, while tech stocks listed in the US, as measured by the Nasdaq-100 index, have posted a 24% loss.

Bitcoin USD 4 hour price index. Source: Trade View

As the US Federal Reserve tightens economic policies by raising interest rates and reducing purchases of debt assets, risk assets are reacting negatively. Fed Chairman Jerome Powell is about to finish a two-day meeting that began on July 27, and market analysts are expecting a nominal 0.75% hike in interest rates.

Tensions are rising in Europe as Gazprom, the Russian state-controlled gas company, is set to cut off supplies from the Nord Stream 1 gas pipeline from July 27. According to CNBC, the company blames a problem with the maintenance of the turbines, but European officials believe otherwise.

The US Senate’s approval of the Chips and Science bill helped tech stocks perform on July 27. This project provides 52 billion dollars of subsidies, guaranteed by debts and taxes, for the American production of semiconductors. It is estimated that there will be an additional $24 billion in funding for the sector, which is aimed at boosting research to compete with China.

For these reasons, traders have mixed feelings about the upcoming Fed announcement and the impact of the global crisis on cryptocurrency markets. As long as the correlation between bitcoin and traditional markets is high, especially technology stocks, investors will try to protect themselves by moving away from risky asset classes like cryptocurrencies.

Bulls set their hopes on $24,000 and above

Open interest for monthly bitcoin options expiration on July 29 is $1.76 billion, but the actual figure will be lower as bulls were surprised as BTC failed to break the $24,000 resistance on July 20.

Global bitcoin options open interest for July 29. Source: CoinGlass

The buy/sell ratio of 1.18 shows $950 million in open interest for call options versus $810 million for put options. However, with bitcoin trading below $23,000, most bullish bets are likely to become worthless.

For example, if the price of bitcoin remains below $23,000 on July 29, bulls will own only $145 million of these call options. This difference occurs because there is no real point in buying bitcoin at $23,000 if it is trading below that level on July 29 at 8:00 am UTC.

The bears may take a $360 million profit on Friday.

Below are the four most likely scenarios based on current prices. The number of option contracts available on July 29 for call and put instruments varies according to the expiration price. The imbalance in favor of each side equals the theoretical profit:

  • Between $19,000 and $20,000: 400 call options compared to 19,300 put options. The net result is $360 million in favor of the bears.
  • Between $20,000 and $22,000: 3,900 call options compared to 11,800 put options. The bears have a $230 million advantage.
  • Between $22,000 and $24,000: 10,300 call options versus 8,600 put options. The bottom line is balanced between bulls and bears.
  • Between $24,000 and $25,000: 14,400 call options compared to 7,100 put options. The bulls have a $175 million edge.

This rough estimate considers the call options used in bullish bets and put options in neutral exclusively with bearish trades. Despite this, this oversimplification does not take into account more complex investment strategies.

For example, a trader could sell a call option, which could gain negative exposure to bitcoin above a certain price, but unfortunately there is no easy way to measure this effect.

Bitcoin Bears need to push the price below $20,000 on July 29 to achieve a $360 million profit. On the other hand, bulls can avoid a loss by pushing BTC above $22,000, thus balancing valid bets on both sides. The bulls seem eager to put their losses behind them and start August with a clean sheet, but it could go either way.

The views and opinions expressed here are solely those of theauthor and those do not necessarily represent Cointelegraph. All investment and trading involves risk. You should do your own research before making a decision.

"I bought bitcoin for the sake of my children", says this MP from Gibraltar

“I bought bitcoin for the sake of my children”, says this MP from Gibraltar

ethereum classic

Ethereum Classic increased by 27% in 24 hours