Friday’s jaw-breaking $3.2B Bitcoin options expiry could kick-start a new rally

Since Oct. 20th, when Bitcoin’s all-time high was $67,000, Bitcoin (BTC), has traded in a descending channel. This occurred just one day after ProShares Bitcoin Strategy ETF (BITO), debuted at Nasdaq.

Bulls still have enough incentives to fix Bitcoin’s price at $60,000 on Oct. 29, when the $3.2 Billion monthly options expire.

Coinbase: Bitcoin price in USD Source: TradingView

Investors are currently expressing mixed feelings about the approval of the exchange-traded funds, even though they reached $1 billion in assets under administration in just 48 hours. Either the market expected these funds to perform at an insanely high level or the 42% increase in October through Oct. 19 was already priced into the event.

Large institutional investors are repelled by the regulatory uncertainty in the United States. Rostin Behnam (acting chairperson of Commodity Futures Trading Commission) described the enforcement of digital assets by the government agency as a “beat cop on duty” at an October 26 hearing before the United States Senate Committee.

Behnam said:

“The risk of digital assets is greatly increased by the market transactions taking place now.”

Bulls have a chance to make $715 million in profit

These remarks are not likely to have much or no effect on bullish markets. This raises the question whether the 13% correction from the Oct. 20 all time high signals the end of a positive phase.

Bears will face a test of strength when the Oct. 29 expiry is reached. Any price above $58,000 equals a profit of $385 million for bulls.

Open interest in Bitcoin options for Oct. 29. Source: Bybt

The monthly expiry of the $1.94 Billion call (buy) instruments is dominant at first glance by 56%, compared to the $1.24 Billion put (sell).

The 1.56 call to put ratio is misleading because bears were taken by surprise. They will lose most of the options they have if Bitcoin’s value remains above $58,000 on Oct. 29 at 8:00 AM UTC.

If Bitcoin prices rise above $55,000, a put option that allows you to sell Bitcoin will be worthless.

Bulls feel at home above $58,000

Sixty-eight% of the put options denoting the right to buy Bitcoin at a predetermined price have been placed at $58,000 and lower.

Here are the most likely scenarios based on current prices. The data also shows how many bulls (call) or bears (put) contracts will be available by Oct. 20.

Between $52,000 to $55,000: 6,500 calls and 6,530 puts. The net result favors bulls over bears. Between $55,000 and $58,000, 9,510 calls vs. 4,610 put. Bulls are favored by $270 million. Between $58,000 and $60,000, 9,900 calls vs. 3,490 put. Bulls continue to win by $385million. Above $60,000: 13,870 call vs. 1,970 put. Bulls will see $715 million in net benefits.

The theoretical profit that could be made from an expiry is represented by the imbalance shown above.

This rough estimate includes call (buy), options that are used in bullish strategies, and put (sell), options that are only used in neutral-to bearish trades. A trader could have also sold a put option to gain Bitcoin exposure above a certain price. This effect is difficult to quantify.

Can bears hold Bitcoin below $55,000?

To avoid a loss of $270 million, bears will need to adjust their $58,500 price by 6%. It may not seem like much, but traders need to account for bullish momentum that the ETF approval brings.

Bulls will likely win by holding Bitcoin above $59,000 for less than 36 hours before the Oct. 29 deadline. The path to sub-55,000 seems far away for bears. However, it might be worth trying.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.