Bitcoin (BTC) price worst case scenario

Bitcoin option contracts worth $1 billion are set to expire on Friday, June 26. Their expiration is expected to increase the volatility of the bitcoin price. New data from Skew shows a downward trend in the BTCUSD ratio of put/call options.On Friday, June 26, Bitcoin options contracts are set to expire with an estimated value of $1 billion, or 1,147,700 bitcoins. There is a lot of anticipation in the market about how this event will affect Bitcoin (BTC), and there is no consensus among analysts on which way this cryptocurrency will go.

According to the data, the open interest in Bitcoin options has increased to over $500 million by the end of 2019. In the first quarter of 2020, the open interest had two drops. In early January and then in March, near the “Black Thursday”. However, it has since recovered and in less than two months reached a record $1 billion in mid-May.

Option contracts are a financial derivative that gives their buyers the option to buy or sell (call/put) an asset, in this case the Bitcoin, at a preagreed price. Buyers with a call option can buy Bitcoin at a lower price than the spot market. The opposite occurs with buyers of the put option, which allows them to sell Bitcoin at a higher price for the duration of the contract.

In this market, buyers with both options try to influence BTC price at their convenience. In such a dynamic, the volatility of the asset can increase especially close to the days before the contracts expire. However, the data for this time shows a different scenario.

It is still necessary to wait to determine if the volatility in Bitcoin price will increase because of the settlement of the options. However, as one trader on Twitter states, the expectation of a market impact may outweigh the reality. The trader stated that the largest volume for call options is between $10,000 and $9,000, a range in which Bitcoin has moved over the past few weeks. Therefore, the trader estimates that the worst case scenario for the BTC price is that it moves sideways.

Again, data shows that the realized volatility in Bitcoin price is at its lowest point since the beginning of April. On the other hand, the implied volatility has been stable since the beginning of June and has not been altered by the expectation of the expiry of the options contracts.

Finally, the put/call option radius in the BTCUSD has been reduced since last week. This indicator points out that the number of call buyers equals the number of put buyers. This indicates that investors are bullish about a rise in the BTC price in the coming weeks.

Author : Reynaldo