Most Bitcoin (BTC) traders would rather see a strong price correction and subsequent recovery than agonize for several months below $24,000. However, BTC has been doing the opposite since June 14 and its most recent struggle is the asset’s inability to clear the $22,000 resistance. For this reason, most traders are holding back their bullish expectations until BTC posts a daily close above $24,000.
Events outside the market crypto-currencies are the biggest factor influencing investors’ outlook on digital assets, and on July 14, US Treasury Secretary Janet Yellen warned that inflation was “unacceptably high” and she ratcheted up support efforts of the Federal Reserve. Asked about the impact of rising interest rates on the economy, Ms Yellen acknowledged the risk of recession.
On the same day, JPMorgan Chase reported a 28% drop in profits from a year earlier, despite flat revenue. The difference comes mainly from a provision for credit losses of $1.1 billion due to a “slight deterioration” in its economic outlook.
Bitcoin’s correlation to the S&P 500 remains incredibly high, and investors fear that a potential crisis in the global financial sector will inevitably lead to a retest of the June 18 low of $17,600.
The measure of correlation ranges from a negative 1, which means the selected markets are moving in opposite directions, to a positive 1, which reflects perfect, symmetrical movement. A disparity or lack of relationship between the two assets would be represented by 0.
The 30-day correlation between the S&P 500 and bitcoin is currently at 0.87, which is the norm for the past four months.
Most bullish bets are above $21,000.
Bitcoin’s inability to break above $22,000 on July 8 took bulls by surprise, as only 2% of call options for July 15 were placed below $20,000. Thus, bitcoin bears are slightly better positioned for the $250 million weekly options expiration. On the same subject : Cryptocurrency Crash Alert: The Fed is issuing a serious warning on bitcoin crashing to $10,000..
A broader view using the call/put ratio of 1.15 shows more bullish bets as open interest for call options stands at $134m vs. $116m for put options (put). Nonetheless, with bitcoin currently trading below $21,000, most bullish bets will likely be worthless.
If the bitcoin price stays below $21,000 at 08:00 UTC on July 15, only $25 million of these call options will be available. This difference is explained by the uselessness of the right to buy bitcoin at $21,000 if it is trading below this level at expiry.
The Bears could pocket a profit of $100 million
Below are the three most likely scenarios based on the current price action. The number of option contracts available on July 15 for call (bullish) and put (bearish) instruments varies depending on the expiry price. See also: Promising crypto: what is Helium Blockchain crypto, and should you invest?. The imbalance in favor of each side constitutes the theoretical profit:
This rough estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Despite this, this oversimplification does not take into account more complex investment strategies.
See also: Bitcoin battles key trendline near $20,000 as US dollar index hits new 20-year high.
Futures markets show bears are better positioned
Bitcoin bears need to pressure the price below $19,000 on July 15 to secure a $100 million profit. Read also: Here is why the price of Terra (LUNA) could see a massive uptrend before long.. On the other hand, the best case scenario for the bulls requires a push above $20,000 to balance the scales.
Professional traders’ lack of appetite for CME bitcoin futures indicates that bulls are less inclined to push the price higher in the short term.
That said, the most likely scenario favors the bears, and to guarantee that, it only takes the price of bitcoin to be trading below $21,000 when the options expire on July 15.
The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.
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