$1.48B in Bitcoin Options Expires Friday – Will BTC Hold $22k?

Bitcoin investor sentiment improved after signs of subdued inflationary pressures suggested the US Federal Reserve may soon move away from interest rate hikes and quantitative tightening. A trend change, commonly known as a pivot, will benefit riskier assets such as cryptocurrencies.

On January 22, peer-to-peer trading of USD Coin (USDC) in China reached a 3.5% premium against the US dollar, indicating moderate FOMO by retail traders. This level is the highest in more than 6 months and indicates that excessive buying demand for the cryptocurrency is putting pressure on the indicator above fair value.

An all-time high in the 7-day Bitcoin hash rate – an estimate of the processing power dedicated to mining – also supported the bullish momentum. On January 19, the indicator peaked at 276.9 exo-hashes per second (EH/s), indicating a reversal of recent weakness caused by miners facing financial difficulties.

Despite the bears’ best efforts, Bitcoin has been trading above $20,000 since January 14 — a move that explains why the expiration of $1.48 billion worth of Bitcoin monthly options will greatly benefit the bulls despite failing to break the $23,200 resistance.

Bulls were very optimistic, but kept their good positions

Bitcoin’s recent rally on January 20 surprised the bears, as just 6% of put (sell) options for the monthly expiration were placed above $22,000. Thus, the bulls are better positioned, although they set about 40% of their call (buy) options at $23,000 or higher.

Bitcoin options combine open interest for November 25. Source: CoinGlass

A broader view using a call-to-put ratio of 1.15 shows more bullish bets, as call (buy) open interest is $790 million versus put (put) options of $680 million. Even so, most bear bets will likely be worthless as Bitcoin rallied 36% in January.

If the price of bitcoin remains above $22,000 at 8:00 AM UTC on January 27th, only $38 million worth of these put options will be available for sale. This difference occurs because the right to sell at $21,000 or $22,000 is not exercised when bitcoin expires.

The Bears could make a profit of $595 million

Below are the four most likely scenarios based on current price action. The number of option contracts available for call (bull) and put (bear) instruments on January 27 varies depending on the strike price. The imbalance in favor of each party constitutes the theoretical profit:

  • Between $20,000 and $21,000: 12,800 calls, 7,100 calls. The net result is in favor of bulls worth $115 million.
  • Between $21,000 and $22,000: 17,600 calls and 2,800 calls. The net result is $320 million in favor of bulls.
  • Between $22,000 and $23,000: 21,200 calls, 1,100 calls. The bulls remain in control and earn $455 million.
  • Between $23,000 and $24,000: 25,300 calls against 0. The Bulls completely dominate the deadline, earning $595 million.

This crude estimate takes into account call options used in bull bets and put options in neutral-to-bear trades only. However, this oversimplification ignores more complex investment strategies.

Related: Bitcoin Shakes Up Against Gold, Stocks As BTC Price Drops Below $22.5K

Bitcoin bears need to break below $21,000 on January 27 to cut their losses significantly. However, bitcoin bears recently had $335 million worth of liquidated leveraged short futures positions, so less margin is needed to show strength in the short term.

Consequently, the most likely scenario for BTC options to expire for January is $22,000 or higher, which would provide a decent win for the bulls.

Bitcoin (BTC) price faced fierce resistance at $23,000 after an 11% rally on January 20, but that was enough to trigger $335 million in liquidations of short positions using futures contracts. A 36% year-to-date gain to $22,500 left bears unprepared for the $1.48 billion in monthly options that expire on January 27.