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Bitcoin Breaks $11.8K on Jerome Powell Speech; Is Rally Sustainable?

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A Jerome Powell speech on central bank digital currencies (CBDC) was enough to decouple Bitcoin from traditional asset markets.

The benchmark cryptocurrency surged above $11,800 in the hours leading up to the Federal Reserve chairman’s cautious remarks on CBDCs at a panel organized by the International Monetary Fund. At 0900 ET Monday, BTC/USD underwent a speculative jump from $11,523 to $11,650. One hour later, when Mr. Powell started his speech, the pair rested.

The next hour, however, it resumed its short-term uptrend by adding another $150 to it. Around noon ET, Bitcoin had established an intraday high at $11,833.

Bitcoin rallied ahead and around Mr. Powell’s speech on Monday. Source: BTCUSD on TradingView.com

It was a standalone act. None of the indexes that formed a positive correlation with Bitcoin matches its ascent in early Monday hours. The S&P 500, for instance, jumped 0.90 percent after the New York opening bell but later pared all those gains to close 1.63 percent lower.

Bitcoin’s daily candle, on the other hand, logged a 2.14 percent intraday return.

Xi Jinping Vibes

The uptick in BTC/USD on Monday served as a reminiscent of a short-term upward trend in October 2019. Only that time, traders raised their bids for the pair after Xi Jinping, China’s premier, endorsed blockchain – Bitcoin’s underlying technology – in a public event.

bitcoin, btcusd, btcusdt, xbtusd

Bitcoin jumped by more than $3,000 after Mr. Jinping’s pro-blockchain statements. Source: BTCUSD on TradingView.com

BTC/USD climbed by more than 40 percent – from $7,430 to as much as $10,540 – before succumbing to a strong selling wave that followed later. The pair crashed by more than 39 percent when the China hype faded.

An imminent correction was a word of caution among many traders as they addressed the Bitcoin rally’s size and pace. A pseudonymous one said that he’d be cautiously waiting for the crypto to hold above $11,660 before opening any new bullish positions.

“If I lose [the support], [then] I’ll be looking to short down to 11.2k,” he added.

Ivan Liljeqvist, a Sweden-based market analyst, ran a poll to understand the consensus behind the next Bitcoin move. The results came mixed, with 47.7 percent voting in favor of correction towards $11,000.

What’s Next for Bitcoin

In the short-term, Bitcoin expects to retain its positive correlation with the US stock market. The cryptocurrency’s direct relationship with the S&P 500 has been erratic, as shown in the Skew chart below. It rises and falls consecutively, but remain intact on a medium-term outlook.

bitcoin, btcusd, btcusdt, xbtusd

Bitcoin-S&P 500 correlation expects to bounce back. Source: Skew

The reason is that every market is waiting for the second coronavirus stimulus package. Once the negotiations settle – macro analysts expect a deal by the November 3 presidential election – all the riskier assets would likely surge in tandem.

Bitcoin also anticipates reaching a new yearly high as the stimulus reduces the bids for the US dollar – and even as it gives the Fed adequate tools to continue its near-zero lending rate and its infinite bond-buying program.





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Bears aim for sub-$60K Bitcoin price ahead of Friday’s $1.1B options expiry

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Bitcoin (BTC) entirely recovered from its recent drop that saw the price fall to the $53,000 support level. This move back to $57,500 relieved bulls from the negative pressure of the May 7, 3,500 BTC options contract, which represents $200 million in open interest along with a $1.1 billion options expiry.

Today’s swift recovery could have been partially driven by the news that New Digital Investment Group (NYDIG) partnered with Fidelity National Information Services (FIS) to create a framework for U.S. banks to offer crypto trading services.

Patrick Sells, the bank solutions chief at NYDIG, told CNBC that several banks have already signed up for the program.

Moreover, a Mastercard survey found that 40% of the 15,500 interview participants intend to use crypto for payments over the next 12 months. Additionally, it reported that 77% of millennials are interested in learning more about cryptocurrency.

Whatever the reason behind Bitcoin’s recent price recovery, bulls are now in a much better position for the May 7 options expiry.

The equilibrium in the call-to-put ratio is misleading

May 7 aggregate BTC options open interest. Source: Bybt

Options contract buyers pay the premium upfront and thus face no forceful liquidation risk. On the other hand, the call (buy) option provides its buyer with upside price protection, and the put (sell) does the opposite.

This means traders aiming for neutral-to-bearish strategies will typically rely on put options. On the other hand, call options are more commonly used for bullish positions.

Analysts could easily dismiss Friday’s Bitcoin expiry as the put-to-call ratio is flat. This means the neutral-to-bullish and neutral-to-bearish options open interest is balanced. However, these options will expire in less than 38 hours, causing the $65,000 and higher calls to become worthless.

The put options, a right of selling Bitcoin at $48,000 on Friday, are also worthless today. To correctly interpret the potential impact of the May 7 expiry, analysts must exclude the strikes that are too far out from the current price.

Bulls have a $104 million advantage at $57,000

The call (buy) options up to $60,000 total 4,950 contracts ($285 million), and if the price of Bitcoin happens to reach $64,000 on May 7, another 1,620 contracts will boost the call options open interest by $93 million.

Alternatively, the neutral-to-bearish put options add up to 3,150 contracts down to the $54,000 strike. These currently present a $181 million open interest and would be increased by 2,800 contracts down to $50,000. This level would boost put options’ open interest by $161 million.

Although bulls have a $104 million advantage leading to Friday’s expiry, this number would be greatly reduced at any level below $60,000. As the chart indicates, most call options (1,680 contracts) have been placed at this level.

Therefore, bears have incentives to suppress the price below $60,000. At least until 8:00 AM UTC on May 7.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.