The Bitcoin (BTC) price jumped to $17,500 on January 11, taking it to its highest level in three weeks. The price move gave bulls control of $275 million weekly BTC options expiring on Jan. 13 because bears had placed bets at $16,500 or less.
The recent move has perma-bulls and dip buyers calling for a market bottom and the potential end of the bear market, but what does the data really show?
Is the Bitcoin bear market over?
It may seem too bearish to say now, but Bitcoin traded below the $16,500 level on Dec. 30 and those bearish bets are unlikely to pay off as the options deadline approaches.
The main hope for investors is the possibility that the US Federal Reserve will halt its interest rate hike in the first quarter of 2023. The Consumer Price Index (CPI) inflation report will be released on January 12 and could give a clue as to whether the central bank’s effort to slow the economy and reduce inflation is achieving the expected results.
Meanwhile, cryptocurrency traders fear that an eventual downturn in traditional markets could send Bitcoin retesting the $15,500 low. For example, Morgan Stanley CIO and Chief US Equity Strategist Mike Wilson told investors on CNBC to prepare for a winter downdraft, warning that the S&P 500 Index is vulnerable to a drop. from 23% to 3,000. Wilson added: “Although most institutional clients think we’re probably going to go into a recession, they don’t seem to be afraid of it. That’s just a big disconnect.”
Bitcoin bears did not expect the rally to $17,500
Open interest for the January 13 options expiration is $275 million, but the actual number will be lower as bears expected prices below $16,500. Bulls appear to be in complete control, despite that your payment becomes much higher than $18,000 or more.
The call-to-put ratio of 1.18 reflects the imbalance between the open interest to buy (call) of USD 150 million and the put options of USD 125 million. If the Bitcoin price sustains above $17,000 at 8:00 am UTC on January 13, less than $2 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $16,500 or $15,500 is worthless if BTC trades above that level at expiration.
$18,000 price for Bitcoin will give bulls a profit of $130 million
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, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical benefit:
- Between $16,000 and $16,500: 100 call options vs. 2,700 put options. The net result favors purchase instruments (bearish) for USD 40 million.
- Between $16,500 and $17,500: 1,400 call options vs. 1,500 put options. The net result is balanced between the call and put options.
- Between $17,500 and $18,000: 4,500 call options vs. 100 put options. The net result favors buy instruments (bullish) for USD 75 million.
- Between $18,000 and $19,000: 7,200 call options vs. 0 put options. The bulls completely dominate the expiration by getting $130 million.
This crude estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. Even so, 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 specified price, but unfortunately, there is no easy way to estimate this effect.
Bitcoin bears need to push the price below $16,500 on Friday to lock in a potential $40 million gain. On the other hand, the bulls can add to their profits by slightly pushing the price above $17,500 for a profit of $75 million.
The 4-day rally totaled a 4.5% gain and liquidated $285 million in leverage short (sell) futures contracts, so they may have less margin required to subdue the Bitcoin price.
Given the uncertainty of the upcoming CPI inflation data, all bets are on the table, but bulls have decent incentives to try and push Bitcoin price above $17,500 on Jan. 13.
The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should do their own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.