Bitcoin price falls below $28K, breaking its previous range as options sentiment shifts towards bearish positions.

On Aug. 16, Bitcoin concluded trading below $29,000 for the first time in 56 days. Analysts quickly attributed this decline to the Federal Open Market Committee minutes released this week, which raised concerns regarding inflation and the necessity to raise interest rates.

In addition to the immediate factors contributing to the drop, the forthcoming $580 million Bitcoin (BTC) options expiry on Friday appears to favor bearish positions. Bears could potentially realize a profit of $140 million on Aug. 18, which would further exert downward pressure on Bitcoin and complicate BTC’s efforts to find a bottom.

Federal Reserve minutes did not affect traditional markets

On Aug. 16, Federal Reserve Chair Jerome Powell reiterated the 2% inflation target. This statement drove the U.S. 10-year Treasury yield to its highest level since October 2007, leading investors to move away from riskier assets such as cryptocurrencies in favor of cash positions and companies that are better positioned for such circumstances.

It is noteworthy that Bitcoin had already declined to $29,000, its lowest level in nine days, before the Fed minutes were released. The influence of the minutes was minimal, particularly as the 10-year yield had been on the rise, suggesting doubts about the Fed’s capability to manage inflation.

Moreover, on Aug. 17, S&P 500 index futures only fell by 0.6% compared to their pre-event level on Aug. 16. Concurrently, WTI crude oil increased by 1.7%, while gold experienced a decline of 0.3%.

Concerns regarding China’s economic performance may have also played a role in the downturn. The country reported retail sales growth and fixed asset investment figures that fell short of expectations, which could influence the demand for cryptocurrencies.

While the precise reasons for the price decline remain unclear, there is a possibility that Bitcoin could reverse its trend following the weekly options expiry on Aug. 18.

Bitcoin bulls made an incorrect bet

Between Aug. 8 and Aug. 9, Bitcoin’s price briefly surpassed the $29,700 threshold, generating optimism among traders utilizing options contracts.

Deribit Bitcoin options aggregate open interest for Aug. 18. Source: Deribit

The 0.57 put-to-call ratio indicates the disparity in open interest between the $365 million call (buy) options and the $205 million put (sell) options. However, the outcome is expected to be lower than the $570 million total open interest, as the bulls were taken by surprise by the recent price drop below $29,000.

For instance, if Bitcoin’s price is at $28,400 at 8:00 am UTC on Aug. 18, only $3 million worth of call options will be valid. This distinction arises because the right to purchase Bitcoin at $27,000 or $28,000 becomes void if BTC trades below those levels at expiration.

Below are the three most probable scenarios based on the current price movements. The number of options contracts available on Aug. 18 for call (buy) and put (sell) instruments varies according to the expiration price. The imbalance favoring each side represents the theoretical profit:

• Between $26,000 and $28,000: 100 calls vs. 5,300 puts. The net result favors the put (sell) instruments by $140 million.
• Between $28,000 and $28,500: 100 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $60 million.
• Between $28,500 and $29,500: 600 calls vs. 1,300 puts. The net result favors the put (sell) instruments by $20 million.

Given the increasing apprehension among investors regarding a potential economic slowdown due to measures taken by central banks to manage inflation, it is likely that Bitcoin bears will maintain their upper hand. This trend is not confined to the upcoming Friday expiry and is anticipated to persist, particularly as the prospects for the BTC bulls’ primary short-term objective — the approval of a spot exchange-traded fund — appear quite limited.

Consequently, those on the bullish side find themselves in a challenging position. The success of their call (buy) options hinges on Bitcoin’s expiry price exceeding $28,500. The most probable scenario, where bears could secure a favorable outcome of $140 million, suggests the likelihood of further corrections in Bitcoin’s price.

This article is for informational purposes only and is not intended to be and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.