Bitcoin Price Breaks Support Level, Options Tilt Toward Bearish Sentiment

In a significant development, the price of Bitcoin has dropped below the key support level of $28,000, causing concern among investors. This downward movement is attributed to various factors, including the recent Federal Open Market Committee minutes, which expressed unease about inflation and the potential need to raise interest rates. Furthermore, the upcoming $580 million Bitcoin options expiry on Friday favors the bears, as they stand to make a $140 million profit if the price continues to decline.

Impact of Federal Reserve Minutes and Market Reactions

The release of the Federal Reserve minutes, with a focus on the 2% inflation target mentioned by Chair Jerome Powell, has led to an increase in the U.S. 10-year Treasury yield. This has prompted investors to shift away from riskier assets like cryptocurrencies and opt for cash positions and more stable companies. However, it is worth noting that the impact of the minutes was limited, as the 10-year yield had already been rising prior to their release.

Despite the drop in Bitcoin’s price, traditional markets, such as the S&P 500 index futures, only experienced a minor decline. Additionally, the concerns surrounding China’s economy, with lower-than-expected retail sales growth and fixed asset investment, may have contributed to the downward pressure on cryptocurrencies.

The Role of Bitcoin Bulls and Options Expiry

Prior to the recent price drop, Bitcoin briefly crossed the $29,700 mark, which led to optimism among traders using options contracts. However, the outcome of the options expiry is expected to favor the put (sell) instruments, as the bears were caught off guard by the sudden decline in price below $29,000.

Based on the current price action, there are three likely scenarios for the options expiry on Aug. 18:

• 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.

This indicates that Bitcoin bears are likely to maintain their advantage, especially given the growing concerns among investors about a potential economic slowdown. The approval of a spot exchange-traded fund, which is a short-term goal for Bitcoin bulls, is also unlikely to materialize, further supporting the bearish sentiment.

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