Bitcoin (BTC) price surged to $17,500 on Jan. 11, hitting its highest level in three weeks. The price action put the bulls in control of the expiration of the $275 million BTC weekly options on Jan. 13 as the bears placed bets at $16,500 and below.
The recent move has perma bulls and dip buyers calling a market bottom and a possible end to the bear market, but what does the data actually show?
Is the Bitcoin Bear Market Over?
It might seem too bearish to say right now, but bitcoin was trading below $16,500 on Dec. 30, and those bearish bets are unlikely to pay off as the option deadline nears.
Investors’ main hope is the possibility that the US Federal Reserve will halt its rate hike in the first quarter of 2023. The consumer price index (CPI) inflation report will be released on January 12 and could provide an indication whether the central Bank’s efforts to slow the economy and bring down inflation are producing the expected results.
Meanwhile, crypto traders are worried that an eventual downturn in traditional markets could see Bitcoin retest the $15,500 low. For example, Mike Wilson, Morgan Stanley’s CIO and chief US equities strategist, told investors on CNBC to brace for a winter downtrend and warned that the S&P 500 index is vulnerable to a 23% drop to 3,000 be. Wilson added: “Even though the majority of institutional clients think we’re likely to enter a recession, they don’t seem afraid of it. That’s just a big breakup.”
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Bitcoin bears didn’t expect the rally to $17,500
Open interest for options expiration on Jan. 13 is $275 million, but the actual number will be lower as bears expected prices below $16,500. The bulls appear to be in complete control, although their payout gets much larger at $18,000 and beyond.
Bitcoin options aggregate open interest for Jan 13th. Source: Coinglass
The call-to-put ratio of 1.18 reflects the imbalance between the $150 million call (buy) options and the $125 million put (sell) options . If the price of Bitcoin stays above $17,000 at 8:00 a.m. UTC on Jan 13, these put (sell) options worth less than $2 million 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.
$18,000 Bitcoin will give the bulls a $130 million profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on January 13 for call (bull) and put (bear) instruments varies by expiry price. The imbalance in favor of each side represents the theoretical gain:
- Between $16,000 and $16,500: 100 calls vs. 2,700 puts. The net result favors put (bear) instruments by $40 million.
- Between $16,500 and $17,500: 1,400 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
- Between $17,500 and $18,000: 4,500 calls vs. 100 puts. The net result favors call (bull) instruments by $75 million.
- Between $18,000 and $19,000: 7,200 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: Bitcoin up 300% in the year before the last halving – will 2023 be different?
Bitcoin bears need to push the price below $16,500 on Friday to lock in a potential $40 million gain. On the upside, the bulls can increase gains by pushing the price slightly above $17,500 to rake in $75 million.
The 4-day rally resulted in a 4.5% gain and liquidated $285 million worth of leveraged short (sell) futures contracts, potentially requiring less margin to dampen Bitcoin’s price .
All bets are on the table given the uncertainty surrounding the upcoming CPI inflation data, but bulls have good incentives to push bitcoin price above $17,500 on Jan. 13.
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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