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Source: Сointеlеgrаph

Bitcoin investor sentiment improved after signals indicating declining inflationary pressures suggested that the US Federal Reserve may soon back out of raising interest rates and quantitative tightening. A change in trend, commonly known as a reversal, will benefit risky assets such as cryptocurrencies.

On Jan. 22, Chinese peer-to-peer trading for USD Coin (USDC) hit a premium of 3.5% against the US dollar, indicating moderate FOMO from retail traders. This level is the highest it has been in over 6 months, suggesting that excessive demand to buy crypto has propelled the indicator above its fair value.

The all-time high of the 7-day Bitcoin hash rate — an estimate of the processing power dedicated to mining — has also supported the bullish momentum. It peaked at 276.9 exohashes per second (EH/s) on January 19th, indicating a recovery of recent weakness caused by miners running into financial difficulties.

Despite the best efforts of the bears, bitcoin has been trading above $20,000 since Jan. 14, a move that explains why a $1.48 billion monthly expiration of Bitcoin options would greatly benefit the bulls, despite the recent failure to clear the $23,200 resistance.

The bulls were too optimistic, but they keep good positions

Bitcoin’s latest rally on January 20 caught the bears by surprise as just 6% of one-month puts (sells) were placed above $22,000. So the bulls are in a better position even though they have set almost 40% of their call (buy) options at $23,000 or higher.

Bitcoin Options pool open interest on November 25th. Source: CoinGlass.

A broader view using a call-to-put ratio of 1.15 shows more bullish bets because $790 million of call (buy) open interest versus $680 million of put (sell) options. However, most bearish bets are likely to be worthless as bitcoin surged 36% in January.

If the price of Bitcoin remains above $22,000 at 8:00 AM UTC on January 27th, only these $38 million put (sell) options will be available. This difference arises because it makes no sense to sell Bitcoin at $21,000 or $22,000 if it trades higher at expiration.

The Bears could make a $595 million profit

Below are the four most likely scenarios based on the current price action. The number of option contracts available on January 27 for call (bullish) and put (bearish) instruments varies depending on the expiration price. The imbalance in favor of each side is the theoretical profit:

$20,000 to $21,000: 12,800 calls versus 7,100 puts. Net result in favor of the bulls by $115 million. Between $21,000 and $22,000: 17,600 calls versus 2,800 puts. Net result in favor of the bulls by $320 million. Between $22,000 and $23,000: 21,200 calls versus 1,100 puts. The Bulls remain in control, posting a $455 million profit. Between $23,000 and $24,000: 25,300 calls versus 0 puts. The Bulls are completely dominant at the expiration date, earning $595 million.

This rough estimate takes into account call options used in bullish bets and put options exclusively in neutral bear trades. However, this oversimplification ignores more complex investment strategies.

Related: Bitcoin sees shake-up versus gold and equities as BTC price plunges below $22.5k

Bitcoin bears need to push the price below $21,000 on Jan 27 to cut their losses significantly. However, the Bitcoin Bears recently had $335 million in leveraged short futures positions liquidated, so they likely have less margin needed to show strength in the short term.

Therefore, the most likely scenario for monthly BTC options to expire in January is $22,000 or higher, which provides a decent win for the bulls.

The price of Bitcoin (BTC) faced sharp resistance at $23,000 after an 11% rise on January 20, but that was enough to trigger liquidation of short positions using $335 million in futures contracts. A 36% year-to-date gain to $22,500 left the bears ill-prepared for $1.48 billion a month options to expire on Jan. 27.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of .

This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.

Source: Сointеlеgrаph

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