News of regulatory enforcement against the crypto sector fell by the wayside as the Bitcoin price rallied above $30,000, and options data suggests the trend will continue.
Bitcoin’s 15% rally toward $30,300 between June 19 and June 21 caught most traders by surprise, triggering $125 million in liquidations of leveraged short futures contracts. Narrowing down the trigger for the rally is complicated, but some analysts point to the potential inflow of institutional investors if BlackRock’s exchange-traded fund (ETF) application gets regulatory approval.
BlackRock just filed with the SEC to create a spot #Bitcoin ETF.
Given their reputation, this has the highest likelihood of happening out of all the attempts at a spot ETF so far.
— Joe Consorti ⚡ (@JoeConsorti) June 15, 2023
ARK Invest CEO and chief investment officer Cathie Wood explained the rationale for the firm’s bullishness on the Bitcoin price, specifically its $1 million target. According to Wood, even in a deflationary environment, Bitcoin can still outperform by offering a solution to the traditional financial system’s counterparty risk.
Furthermore, the negative regulatory pressure eased on June 16 after Binance was able to strike a temporary agreement with the U.S. Securities and Exchange Commission to avoid a potential asset freeze. The event further cemented Bitcoin bears’ opportunity to profit on the $715 million weekly BTC options expiry.
Bears made a mistake when BTC’s price dropped below $25,000
Bitcoin’s price dropped below $26,300 on June 10, fueling bearish bets by traders using options contracts. Such a level was only recouped on June 16, which explains why bears have concentrated their bets on Bitcoin trading below $27,000.
The 0.82 put-to-call ratio reflects the difference in open interest between the $415 million call (buy) options and the $300 million put (sell) options. However, the outcome will be lower, as bears were caught by surprise as Bitcoin gained 10% in two days.
For instance, if Bitcoin’s price remains near $29,800 at 8:00 am UTC on June 23, there will be only $5 million in put options. This distinction arises since the right to sell Bitcoin at $28,000 or $29,000 is rendered void if BTC trades above that on the expiry.
Bulls are in a good position to capture a $250 million profit
Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 23 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:
- Between $27,000 and $28,000: 3,500 calls vs. 1,200 puts. The net result favors the call (buy) instruments by $60 million.
- Between $28,000 and $29,000: 7,300 calls vs. 500 puts. The net result favors the call instruments by $195 million.
- Between $29,000 and $30,000: 8,600 calls vs. 100 puts. The bulls’ advantage increases to $250 million.
- Between $30,000 and $31,000: 10,400 calls vs. 0 puts. Bulls have total control, profiting $310 million.
This rough estimate considers only put options in bearish bets and call options in neutral-to-bullish trades. Nonetheless, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but this effect is difficult to estimate.
Bears will likely try to downplay the multiple Bitcoin ETF applications, including BlackRock’s and WisdomTree’s. Meanwhile, bulls should closely monitor the regulatory changes, including the ongoing investigation of Binance in France, as the Paris Prosecutor’s Office reportedly cited “acts of illegal exercise of the function of a service provider on digital assets (PSAN), and acts of aggravated money laundering.”
The critical level for the weekly expiration is $28,000, but it is impossible to predict the outcome due to increased cryptocurrency regulatory risks. If bulls are able to profit $250 million or higher, those funds will most likely be used to further strengthen the $28,000 support.