Bitcoin price has dropped back to the $27,000 level after a long period, which has been expected for a while. It was said that the shallow volatility during the period when the price was stuck between $28,500 and $31,400 wouldn’t last long. As expected, the king of cryptocurrencies entered a period of extreme volatility.
Why is the Bitcoin Price Falling?
The Bitcoin price closed below $29,000 for the first time in 56 days. Analysts attribute this to inflation and interest rates. We have already mentioned that the recent FOMC minutes would trigger such a process. Regulatory concerns are another major issue that fuels negative sentiment for BTC. Many market makers are withdrawing from the market due to this, and giants like Binance are facing SEC’s wrath.
In the medium term, if macro data doesn’t improve suddenly and US officials don’t put a stop to the SEC, the decline in the crypto market may continue. The Jackson Hole meeting, which will take place on September 26th along with new inflation, wage growth, and employment data in September, will be of critical importance. Powell’s statements during this meeting last year caused significant fluctuations in the market.
The minutes emphasized a 2% inflation target. This led to investors moving away from riskier assets like cryptocurrencies by pushing the yield on US 10-year Treasury bonds to its highest level since October 2007. Concerns about the Chinese economy may have also contributed to the drop. The country’s lower-than-expected retail sales growth and fixed asset investment may have potentially affected the demand for cryptocurrencies.
Cryptocurrencies Can Fall Further
Despite the immediate reasons for the decline, the $580 million Bitcoin option expiring on Friday has worked in favor of the bears. They can potentially make a profit of $140 million on August 18th, which increases the downward pressure on Bitcoin and makes the search for the bottom more difficult.
While the exact reasons for the price drop remain uncertain, there is a possibility of Bitcoin reversing its trend after the expiration of weekly options on August 18th.
Below are the three most likely scenarios based on the current price movement. The number of option contracts available for call and put instruments varies depending on the expiration price. As you can see below, the options are in favor of the bears, and the price is likely to remain below $28,000 when the options expire.
- Between $28,000 and $28,500: 100 call contracts versus 5,300 put contracts. The net result is in favor of the sellers with $140 million.
- Between $28,000 and $28,500: In favor of the sellers with $60 million.
- Between $28,500 and $29,500: In favor of the sellers with $20 million.
Given the increasing concerns about the upcoming economic slowdown due to central banks’ measures to control inflation, it is likely that Bitcoin bears will continue to benefit. If the Bitcoin price can rise above $28,500, it can escape this pressure. However, the upcoming Jackson Hole meeting and recent data weaken this possibility.
