Bitcoin (BTC) price plummeted to $15,500 on Nov. 21, propelling the price to its lowest level in two years. The two-day correction resulted in a total downtrend of 8% and wiped out $230 million worth of leveraged long (buy) futures contracts.
The price action gave the bears the false impression that expiration below $15,500 on the Dec. 9 options expiry is feasible, but those bets are unlikely to pay off as the deadline nears.
Year-to-date, Bitcoin price is down 65% for 2022, but the leading cryptocurrency remains in the top 30 global tradable asset class ahead of tech giants like Meta Platforms (META), Samsung (005930.KS) and Coca-Cola (KO).
Investors’ main concern remains the possibility of a recession if the US Federal Reserve hikes interest rates for longer than expected. Evidence of this comes on Dec. 2 data that showed 263,000 jobs were added in November, suggesting the Fed’s efforts to slow the economy and lower inflation are still in the works.
On Dec. 7, Wells Fargo director Azhar Iqbal wrote in a note to clients that “overall financial indicators are pointing to a recession on the horizon.” Iqbal added, “Together with the inverted yield curve, markets are clearly primed for a 2023 recession.”
Bears have been overly pessimistic and will suffer the consequences
The open interest for options expiration on Dec. 9 is $320 million, but the actual number will be lower as the bears expected price levels below $15,500. These traders got cocky after bitcoin traded below $16,000 on Nov. 22.
Bitcoin Options Aggregate Open Interest for December 9th. Source: CoinGlass
The call-to-put ratio of 1.19 reflects the imbalance between the $175 million call (buy) options and the $145 million put (put) options . Bitcoin currently stands at $16,900, meaning most bearish bets are likely to become worthless.
If the price of Bitcoin stays near $17,000 at 8:00 UTC on December 9th, only $16 million worth of these put (sell) options will be available. This difference arises because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC is trading above that level at expiry.
Bulls target $18,000 to make $130 million in profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on December 9th for call (bull) and put (bear) instruments varies by expiry price. The imbalance in favor of each side represents the theoretical gain:
- Between $15,500 and $16,500: 200 calls vs. 2,100 puts. The net result favors put (bear) instruments by $30 million.
- Between $16,500 and $17,000: 1,700 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
- Between $17,000 and $18,000: 5,500 calls vs. 100 puts. The net result favors call (bull) instruments by $100 million.
- Between $18,000 and $18,500: 7,300 calls vs. 0 puts. Bulls completely dominate the process by winning $130 million.
This rough estimate takes into account the put options used in bearish bets and the call options used exclusively in neutral to bullish trades. Nevertheless, this simplification ignores more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a certain price, but unfortunately there is no easy way to gauge this effect.
Related: Institutional investors are still eyeing crypto despite the FTX collapse
Bulls are likely to have less leeway to support the price
Bitcoin bulls need to push the price above $18,000 on Friday to lock in a potential $130 million gain. On the other hand, the bears’ best-case scenario requires a slight boost below $16,500 to maximize their gains.
Bitcoin bulls just had $230 million in leveraged long positions that were liquidated in two days, so they may need less margin to support the price.
Considering negative pressure from traditional markets due to recession concerns and rising interest rates, bears are likely to avoid a loss by keeping Bitcoin below $17,000 on December 9th.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
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