Could the options market play a role in bringing Bitcoin back to $50k?

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Bitcoin’s recovery from the September 7 catastrophe has been more challenging than expected. However, the same argument that explains the chain of events that resulted in the 14.69 percent collapse also defines how Bitcoin can regain its footing.

What happened on 7 September?

The entire market has been volatile during the last seven days. This has resulted in crashes, FUD (for example, the Litecoin-Walmart “relationship”), and an increasing number of investors waiting for their losses to turn into profits once more.

While this fall definitely had an impact on the market, few are aware that it was initiated as soon as, and possibly as a result of, BTC reaching $52k.

When Bitcoin reached that level, it registered a local high and set a 4-month high. This raised the prospect that the price would soon begin to correct, and as it did, liquidations commenced.

According to the long liquidation dominance, the market experienced a short liquidation squeeze just before the sell-off. During that time span, this squeeze accounted for 80 percent of all liquidations.

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The next day, long liquidations increased to 68 percent, and BTC plummeted by $10k at one point shortly afterwards.

Bitcoin Long liquidations | Source: Glassnode

This also contributed to the perpetual Futures market’s open interest plummeting by more than 30% as $4 billion contracts were closed in one hour. It was roughly $9 billion at the time of writing, down from $13 billion.

Traders saw this as an appealing opportunity and hedged their positions throughout that time period. This pattern of increased Options volume amid sell-offs has been continuous since March, with volumes reaching $1.3 billion this time.

Bitcoin Options Volume | Source: Glassnode

So, where is Bitcoin heading?

Along with the aforementioned drops, there was a momentary drop in funding rates, which has now risen back to positive territory. However, the Funding Rate has been much lower than it was during the crash recovery in May.

What matters is that this increase in favourable attitude will benefit Bitcoin, as there are over 12.9k and 13.4k contracts predicting the price to reach $50k and $100k, respectively.

Bitcoin OI by strike | Source: Skew

However, based on price movement and network performance, $50k appears to be more likely at the present.

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Although there is only a 21% possibility that BTC would reach that level this month, the expiry of 45k Calls and 25k Puts contracts on September 24 will provide a better picture of where the price will be by October 1.

Bitcoin options expiry | Source: Skew –

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