As the monthly candle close of Bitcoin (BTC) comes closer, signs of heightened volatility are emerging. With just four days until the highly anticipated expiration of Chicago Mercantile Exchange futures contracts and Deribit options, BTC’s near-term direction remains uncertain.
Three reasons to expect a spike in volatility over the next week are BTC’s prolonged consolidation, a key resistance level overhead, and the sizable expirations of BTC futures and options contracts.
Bitcoin consolidates for nearly a week
On Aug. 17, the price of Bitcoin surged to as high as $12,486 on Coinbase, achieving a new yearly high. Since then, the price has consolidated within a tight range and been unable to break above $12,000 again.
When Bitcoin consolidates for extended periods without clear price movement to either direction, it tends to see high volatility. Since Aug. 19, the Bitcoin price has stayed within a 4.5% range, which presents a tight range for BTC.
BTC/USD nears a crucial support. Source: TradingView.com, Mayne.
A pseudonymous trader known as “Mayne” said the $11,650 support level is critical for BTC in the short term. Referring to the $11,650 to $11,730 support range, the trader said:
“If we can hold the grey, wick into it could be a long entry. I think we’ll push up to $12.1k. Lose the grey, flip short towards $11.1k.”
Options expiration approaching
Although the open interest in the Deribit Bitcoin options market is not as high as it was in June, there is $500 million worth of options open for the Aug 28 contract.
The simultaneous expiration of August options and futures contracts could cause large Bitcoin price movements. One options trader said:
“Not at June levels, but still a little over $0.5 billion of BTC option OI currently sitting in 28AUG20 on Deribit.”
Josh Olszewicz, a popular cryptocurrency technical analyst, hinted that CME Bitcoin futures expirations could also lead to intense price action. He said:
“CME BTC futs [futures] roll this week. Watch for increased shenanigans.”
Bitcoin futures contracts on CME that face expiration. Source: Josh Olszewicz.
Bitcoin needs to overcome the $11,900 resistance level
Since early August, the price of Bitcoin has rejected at the $11,900 level twice, both times seeing a relatively large sell-off shortly thereafter.
In the last 24 hours, Bitcoin rejected from the $11,800 to $11,900 resistance range once again. If BTC continues to fall in the short term, it could print a lower high formation on lower time frame charts.
Fundamentals drop off slightly
“Bitcoin on-chain fundamentals decreased slightly during Week 34. GNI lost 6 points, dropping from 71 to a current level of 65 points. This was due mostly to a decrease in the Sentiment subindex, while Network Health and Liquidity also saw small decreases.”
The confluence of a minor decline in fundamentals, prolonged consolidation, options expiration, and a key near-term resistance raises the chances of a major price reaction.