Bitcoin price drops below $29,000 for the first time in 56 days
On August 16th, Bitcoin closed below $29,000 for the first time in 56 days, prompting analysts to look for reasons behind the drop. Many pointed to the Federal Open Market Committee minutes released earlier in the week, which expressed concerns about inflation and the need to increase interest rates. These concerns likely contributed to the downward pressure on Bitcoin and complicated its search for a bottom.
Bitcoin options expiry adds downward pressure on BTC
Adding to the bearish sentiment, there is an upcoming $580 million Bitcoin options expiry on Friday. This expiration could potentially result in a $140 million profit for the bears, further adding to the downward pressure on Bitcoin. With this large options expiry looming, it becomes more difficult for Bitcoin to find a bottom and reverse its trend.
Federal Reserve minutes have limited impact on traditional markets
Despite the immediate reasons for the drop in Bitcoin’s price, the impact of the Federal Reserve minutes on traditional markets was limited. On August 16th, Federal Reserve Chair Jerome Powell emphasized the 2% inflation target, causing the U.S. 10-year Treasury yield to rise. This prompted investors to shift away from riskier assets, such as cryptocurrencies, and favor cash positions and companies prepared for potential inflation. However, the impact on other markets, such as the S&P 500 and gold, was relatively minimal.
China’s economic concerns contribute to Bitcoin’s decline
In addition to the Federal Reserve minutes, concerns about China’s economy may have also contributed to the decline in Bitcoin’s price. China recently reported lower-than-expected retail sales growth and fixed asset investment, which could potentially affect the demand for cryptocurrencies. These economic concerns, coupled with the inflation worries, create a challenging environment for Bitcoin.
Bulls cast wrong bet as Bitcoin’s options expire
Bitcoin bulls seemed to have cast the wrong bet with the options contracts leading up to the expiration. Between August 8th and August 9th, the price of Bitcoin briefly crossed the $29,700 mark, leading to bullish optimism among traders. However, the recent drop in price below $29,000 caught the bulls by surprise. As a result, the balance of open interest between call (buy) options and put (sell) options heavily favors the puts. The bears could potentially make a profit of $140 million if the price remains below $28,000 upon expiration.
Likely further correction in Bitcoin’s price ahead
With the upcoming options expiration favoring the bears and the overall market sentiment being cautious due to concerns about inflation and central bank actions, it is likely that Bitcoin will continue to face downward pressure. The chances of a reversal in the short term are slim, especially considering the bulls’ primary goal of getting a spot exchange-traded fund approved. As a result, there may be a further correction in Bitcoin’s price ahead. Investors should brace themselves for potential volatility in the cryptocurrency market as these factors continue to play out.
Analyst comment
Positive/negative/neutral: Negative
Short analysis: With the upcoming options expiry favoring bears and concerns about inflation and central bank actions, the market sentiment for Bitcoin is cautious. It is likely that Bitcoin will continue to face downward pressure, and a further correction in price may occur. Investors should brace themselves for potential volatility in the cryptocurrency market.
