Bitcoin price rallies to $31.8K, but derivatives data highlights BTC bears’ advantage

This July 14 Bitcoin weekly options expiry holds the potential to be a significant turning point for market sentiment, potentially leading to a breach below the crucial $30,000 support level.

Despite the initial bullish surge triggered by the spot Bitcoin exchange-traded fund (ETF) requests, the recent macroeconomic data has not been favorable for risk-on assets.

Analyzing market sentiment is crucial in assessing the chances of Bitcoin (BTC) holding above $30,000 by July 14. This level acts as a threshold that could provide bears with a perfect opportunity to profit up to $120 million through the weekly option expiry.

Falling U.S. inflation is detrimental to Bitcoin in the short term

In June, the Consumer Price Index in the United States registered at 3.0%, the lowest level since March 2021. This was primarily due to a 16.7% decline in the energy index. While this indicates a slowdown in inflation, it remains above the Federal Reserve’s target of 2%, which is detrimental to Bitcoin, as higher interest rates incentivize investors to pivot into fixed-income investments.

One could argue that, in the short term, the lowering of inflation reflects a successful intervention by the Fed and could be viewed as a positive factor for Bitcoin’s bullish momentum. However, on July 12, the U.S. Dollar Index, which measures the dollar’s strength against major foreign currencies, reached its lowest level in 14 months.

In essence, investors’ confidence in the Fed’s ability to prevent a recession seems to be waning. Wharton professor Jeremy Siegel suggested that the U.S. economy is “progressing smoothly,” with consumers seemingly unaffected by higher borrowing costs. However, Siegel believes that consumers are currently utilizing the last of their cash reserves for travel and enjoying the summer.

ETF approval odds decreased after remarks from the SEC

The most compelling argument for the bulls to support further gains and sustain Bitcoin’s trading price above $31,000 on July 14 lies in the potential approval of the spot ETF. However, recent statements by Gary Gensler, chair of the U.S. Securities and Exchange Commission (SEC), have been unfavorable.

Gensler noted on July 12 that crypto exchanges often offer conflicting services, including trading directly against their own clients. Furthermore, he cautioned about the limited risk monitoring practices employed by crypto platforms, leaving them vulnerable to market manipulation, such as wash trading.

Over the years, the SEC has rejected multiple requests for spot Bitcoin ETFs, citing significant pricing occurring on unregulated trading platforms. The regulator has also expressed concerns about the ability of ETF providers to protect investors from fraudulent and manipulative acts.

Bearish instruments were outnumbered but better positioned

Bitcoin’s price traded above $31,000 on July 4, fueling bullish bets by traders using options contracts. Another failed attempt to break the resistance on July 6 explains why bulls have concentrated their bets on Bitcoin prices trading above $31,000.

*Deribit* *Bitcoin options aggregate open interest for July 14. Source: Deribit*

The 0.53 put-to-call ratio reflects the difference in open interest between the $470 million call (buy) options and the $250 million put (sell) options. However, the outcome will be lower than the $720 million total open interest since the bulls were overconfident.

For example, if Bitcoin’s price trades at $30,500 at 8:00 am UTC on July 14, only $30 million worth of call options will be accounted for. This distinction arises from the fact that the right to purchase Bitcoin at $31,000 or $32,000 becomes invalid if BTC trades below those levels upon expiration.

Bitcoin bears can flip the tables and bag a $120 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on July 14 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

Between $28,000 and $30,000: 200 calls vs. 4,100 puts. The net result favors the put (sell) instruments by $120 million.
Between $30,000 and $31,000: 1,000 calls vs. 1,100 puts. The net result is balanced between the call and put instruments.
Between $31,000 and $32,000: 4,200 calls vs. 200 puts. The net result favors the call (buy) instruments by $125 million.
Between $32,000 and $33,000: 6,400 calls vs. 0 puts. The net result favors the call (buy) instruments by $210 million.

Taking into account the latest macroeconomic data that supports more interest rate hikes and Gensler’s negative comments about exchanges’ ability to provide the basis for a spot Bitcoin ETF approval, bears have an opportunity to break below the $30,000 price support and secure a $120 million profit during the upcoming weekly options expiry.