The price of Bitcoin (BTC) rose to $17,500 on January 11, taking it to a three-week high. The price move gave the bulls $275 million BTC weekly options expired on January 13 as bears placed bets at $16,500 and below.
The recent move has permabulls and dip buyers calling for a market bottom and a potential end to the bear market, but what does the data actually show?
Is the Bitcoin Bear Market Over?
It may seem too pessimistic to say this now, but Bitcoin traded below the $16,500 level on December 30th, and these bearish bets are unlikely to pay off as options expire.
The main hope of investors is the possibility that the US Federal Reserve will stop raising interest rates in the first quarter of 2023. The Consumer Price Index (CPI) inflation report will be released on January 12, and it will be released for the first quarter of 2023. the central bank’s efforts to slow the economy and lower inflation are having the expected results.
Meanwhile, cryptocurrency traders fear that the recent decline in traditional markets could cause Bitcoin to retest the $15,500 low. For example, Mike Wilson, Morgan Stanley’s chief investment officer and chief US equity strategist, told CNBC that investors should prepare for a winter drawdown and warned that the S&P 500 was vulnerable to a 23% drop to 3,000. Wilson added: “While most institutional clients think we’re going into a recession, they don’t seem to be afraid of it. It’s just a huge disconnect.”
Bitcoin bears did not expect a rally to $17,500
Open interest for the options expiring on January 13 is $275 million, but the actual number will be lower as bears expect prices below $16,500. With payouts of $18,000 and up, the bulls appear to be in complete control.
A call-to-issue ratio of 1.18 reflects the imbalance between $150 million of call (call) open interest and $125 million of put (put) options. If the price of bitcoin remains above $17,000 at 8:00 AM UTC on January 13th, these put (sell) options will be worth less than $2 million. This difference occurs because the right to sell Bitcoin at $16,500 or $15,500 is worthless if BTC trades above this level at expiration.
$18,000 Bitcoin will give the bulls $130 million in profit
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 13 varies depending on the expiration price. The imbalance in favor of each party constitutes the theoretical profit:
- Between $16,000 and $16,500: 100 calls and 2,700 calls. Net result favors put (bear) instruments worth $40 million.
- Between $16,500 and $17,500: 1,400 calls and 1,500 calls. The net result is balanced between bears and bulls.
- Between $17,500 and $18,000: 4,500 calls and 100 calls. The net result favors $75 million worth of call (bull) instruments.
- Between $18,000 and $19,000: 0 vs. 7,200 calls. Bulls dominate the last period with a profit of $130 million.
This crude estimate takes into account put options used in bear bets and call options in neutral-to-bull trades only. However, this oversimplification ignores more complex investment strategies.
For example, a trader could sell a put option, with a positive effect on Bitcoin above a certain price. But unfortunately, there is no easy way to evaluate this effect.
Related: Bitcoin gained 300% a year before the last halving – is 2023 different?
Bitcoin bears need to break below $16,500 on January 13 to take a potential $40 million profit. On the other hand, the bulls could extend their gains by pushing the price slightly above $17,500 to take a profit of $75 million.
The four-day rally saw a 4.5% gain and liquidated $285 million worth of short-term (selling) futures contracts, so less margin may be needed to push Bitcoin’s price lower.
All bets are on the table given the uncertainty from the upcoming CPI inflation data, but bulls have decent incentive to try to push the Bitcoin price above $17,500 on January 13.
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