Bitcoin’s sudden 15% surge towards $30,300 between June 19 and June 21 caused $125 million in liquidations of leveraged short futures contracts, taking traders by surprise. While pinpointing the exact cause of the rally is complicated, some analysts suggest that an inflow of institutional investors could be a potential trigger if BlackRock’s exchange-traded fund (ETF) application obtains regulatory approval.
ARK Invest CEO and chief investment officer, Cathie Wood, explained the reasoning behind her firm’s bullishness on Bitcoin’s price and its $1 million target. According to Wood, Bitcoin can still outperform even in a deflationary environment by providing a solution to the traditional financial system’s counterparty risk.
The negative regulatory pressure also eased on June 16 after Binance managed to reach a temporary agreement with the U.S. Securities and Exchange Commission to prevent a potential asset freeze. The event further cemented Bitcoin bears’ opportunity to profit on the $715 million weekly BTC options expiry.
Bitcoin’s price dropped below $26,300 on June 10, leading to bearish bets by traders using options contracts. This level was only regained on June 16, explaining 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, bears were caught off guard as Bitcoin gained 10% in two days.
For example, if Bitcoin’s price remains around $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 expiry.
Below are the four most probable 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 only considers put options in bearish bets and call options in neutral-to-bullish trades. However, this oversimplification excludes more complex investment strategies. For instance, a trader could have sold a call option, gaining negative exposure to Bitcoin above a specific price, but it is difficult to estimate this effect.
Bears will likely try to downplay the multiple Bitcoin ETF applications, including BlackRock’s and WisdomTree’s. Meanwhile, bulls should closely monitor 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 can profit $250 million or more, it is likely that these funds will be used to further strengthen the $28,000 support.