Bitcoin’s weekly 32% rally has become the bears’ worst nightmare as $ 860 million options expire on Friday. After a break of $ 54,000, likely over 99% of bearish bets with put (put) options will become worthless.
The bears are in a dangerous position as Bloomberg Cryptocurrency Outlook suggests that Bitcoin’s $ 50,000 resistance is about to break support. The chief commodities strategist Mike McGlone named factors such as increasing acceptance in connection with a dwindling supply on the stock exchanges.
Bloomberg also noted that traditional financial investors’ interest rose after US government default protections rose to a six-year high. In addition, the one-year credit default swap or the cost of hedging against late payment rose from 4 basis points in mid-September to 27 basis points.
Another key metric that definitely powers this week’s bull run is Bitcoin’s hash rate, the estimated computing power that powers network miners. That capacity dealt a severe blow in May when China vetoed the use of coal-based energy to mine cryptocurrencies. Then, in early June, the country decided to ban cryptocurrency mining, which temporarily took many miners offline, affecting the hash rate.
This week the bulls picked up on those favorable terms and pushed Bitcoin to its highest level since May 12 at $ 55,000. With $ 860 million worth of options expiring on October 8, the bears need a miracle to push the price below $ 50,000 to avoid significant losses.
As the data above shows, the bears are betting $ 400 million on the Friday expiration date, but it looks like they got caught by surprise as 99% of put (sell) options are likely to become priceless.
In other words, if Bitcoin stays above $ 54,000 on Friday, only $ 2.7 million of neutral to bearish put options will be activated when it expires. The right to bet (wager) Bitcoin at $ 50,000 will become worthless if BTC trades above that price at 8:00 a.m. UTC on October 8th.
Open interest and bulls are fairly balanced
A call-to-put ratio of 1.16 represents the small difference between call options (buy) of $ 465 million and put options (sell) of $ 400 million. This broader view is in favor the bull, however, requires more detailed analysis as some bets are unacceptable given the current price level.
Here are the four most likely scenarios for Friday’s expiration. An imbalance in favor of one of the parties represents a theoretical gain. In other words, depending on the expiry price, the number of active put (buy) and put (sell) contracts will vary:
- From $ 48,000 to $ 50,000: 3,515 calls versus 1,765 bookings. Net income is $ 85 million coping support.
- From $ 50,000 to $ 54,000: 6,270 calls versus 735 bookings. Net income is $ 290 million in favor of call (bull) instruments.
- From $ 54,000 to $ 56,000: 6,930 calls versus 50 bookings. Net income is $ 370 million in favor of call (bull) instruments.
- Over $ 56,000: 7,600 calls versus 0 bookings. The net result was complete domination with bulls making $ 425 million.
This rough estimate assumes that the call will only be used in bullish bets and puts the option in neutral to bearish trades. However, investors could have used a more complex strategy that often involves different expiration dates.
Bear was destroyed one way or another
In short, Bitcoin bulls have absolute control over the process on Friday and have enough incentive to keep the price above $ 54,000. On the flip side, the bears need a 10% negative move below $ 50,000 to avoid a loss of $ 370 million.
However, one must bear in mind that with bull runs, like the current Bitcoin, the effort that the seller has to pay for the liquidation is enormous and often inefficient. Simply put, if there are no surprises before October 8th, Bitcoin will keep rising with higher prices.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.