An aggregate of $5.5 billion in Bitcoin (BTC) options is set to expire in the early hours of July 26. This month’s expiry is particularly important because Bitcoin's price has faced immense negative pressure from several sources: the Mt. Gox bankruptcy proceedings distribution, the sale of 50,000 BTC by the German government, and the disposal of 14,000 BTC from the failed Genesis Trading firm.
Significant sell pressure made most Bitcoin call options worthless
On July 24, the Mt. Gox estate sent 42,583 BTC to a couple of addresses, likely to cryptocurrency exchanges. These funds have been withheld for over 10 years since the Japanese-based exchange collapsed and are currently being allocated to its creditors, leaving no balance left to be distributed. Similarly, the German government offloaded the last of its Bitcoin holdings on July 12.
Additionally, the bankrupt Digital Currency Group’s OTC and trading desk, Genesis Trading, transferred 14,000 BTC to Coinbase between June 12 and July 17, indicating a potential asset liquidation. Unlike the other cases, which seem depleted, the Genesis Trading addresses still hold 32,256 BTC, according to Arkham Intelligence data. A US court ordered the firm to repay investors a total of $2 billion.
On the bright side, Bitcoin spot-exchange traded funds (ETFs) gathered an aggregate inflow of $2.84 billion since July 5, according to Farside Investors data. This aggressive sell-side pressure explains why Bitcoin’s price retested levels below $55,000 on July 8 and failed to break above the $68,000 resistance on July 22.
This movement explains why most of the put (sell) options were placed at $60,000 or lower, while the call (buy) options aimed for $70,000 and higher. The put-to-call open interest heavily favors the call options, but that does not necessarily translate into an advantage for neutral-to-bullish strategies.
Bitcoin price below $64,000 favors put options
Deribit is the absolute market leader for the July BTC options expiry, totaling $4 billion in open interest. The Chicago Mercantile Exchange (CME), the vice-leader, holds $800 million in open interest, followed by OKX with $400 million and Binance with $300 million. In total, the combined call and put BTC options for July amount to $5.5 billion.
If Bitcoin remains near $66,500 on July 26 at 8:00 am UTC, the rights to buy BTC at $68,000 and $70,000 will not be exercised. Similarly, put (sell) options below $66,000 will become null. Therefore, the aggregate $5.5 billion open interest can be misleading, demanding a deeper analysis based on expected price brackets.
The 0.62 put-to-call ratio indicates an imbalance between the $2.5 billion call open interest and the $1.5 billion put options. However, if Bitcoin's price remains below $67,000 at 8:00 am UTC on July 26, only $560 million worth of these call options will be exercised.
Below are the four most likely scenarios at Deribit exchange based on current price trends. The availability of options contracts for calls and puts on July 26 varies depending on the settlement price:
- Between $62,000 and $64,000: 2,780 calls versus 5,830 puts. The net result favors the put (sell) options by $190 million.
- Between $64,000 and $66,000: 4,260 calls versus 3,950 puts. The net result is balanced between call and put options.
- Between $66,000 and $67,000: 6,270 calls versus 2,300 puts. The net result favors the call (buy) options by $260 million.
- Between $67,000 and $68,000: 8,060 calls versus 1,600 puts. The outcome favors the call (buy) options by $430 million.
In essence, Bitcoin bulls need to sustain the $66,000 support ahead of the July monthly expiry to secure a potential $260 million advantage. It is worth noting that this rough calculation does not account for more complex investment strategies.