Bitcoin (BTC) investors seem uneasy about adding positions after the most recent 40% correction from the all-time high of $69,000 made on Nov. 10. In addition to the prolonged downtrend, comments from the US Federal Reserve on December 15 about raising interest rates also weigh on risk assets.
The Fed has signaled it may raise its benchmark rate three times this year and there are plans to increase the pace of its tapering off of asset purchases.
Consequently, traders are concerned that these plans will have a negative impact on the traditional and crypto markets because liquidity will no longer be “easily” available.
Crypto asset regulation in the US has been in the spotlight and recently a member of the Securities and Exchange Commission Investor Advisory Committee called on the agency to open public comment on digital asset regulation.
On Jan. 18, Associate Professor of Law JW Verret directed the petition to SEC Secretary Vanessa Countryman, and according to Verret, the current path the SEC is taking appears to fail to recognize that digital assets do not fit within the designed regulatory framework. for capital investments.
The professor also questioned the requirements that the SEC would consider when approving a Bitcoin exchange-traded fund.
$590 million in options expire on January 21
Despite Bitcoin being said to be correlated with traditional markets, BTC derivatives traders were not expecting prices below $44,000, based on the Jan. 21 options expiry. The $590 million open interest on Friday will allow the bears to get up to $82 million if BTC trades below $41,000 during the expiration.
At first glance, the $380 million calls far outweigh the $210 million puts, but the call-to-put ratio of 1.81 is misleading because the recent price decline will likely wipe out the most bullish bets.
There is no value in the right to buy Bitcoin at $44,000 if it trades below that price. Therefore, if Bitcoin remains below $44,000 at 8:00am UTC on Jan 21, only $64 million of those call options will be available at expiration.
Bears are comfortable with Bitcoin price below $42,000
Here are the four most likely scenarios for the $590 million options expiry on January 21. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiration price, the active number of buy (call) and sell (put) contracts varies:
- Between $40,000 and $41,000: 30 call options vs. 3,320 put options. The net result is 132 million dollars in favor of the selling instruments (bearish).
- Between $41,000 and $42,000: 170 call options vs. 2,180 put options. The net result is 82 million dollars in favor of the selling instruments (bearish).
- Between $42,000 and $44,000: 1,480 call options vs. 1,130 put options. The net result is balanced between call and put options.
- Between USD 44,000 and USD 45,000: 2,980 call options vs. 630 put options. The net result favors the bulls at $103 million.
This crude estimate considers put options to be used on neutral to bearish bets and call options exclusively on bullish trades. However, this oversimplification does not take into account more complex investment strategies.
The bulls need the $44,000 to make a $103 million profit
Regulatory uncertainty and monetary policies from the Federal Reserve may be the reasons for the recent market weakness, but a simple 5% price increase from the current level of $42,000 is enough for Bitcoin bulls to make $$ profits. 103 million due on January 21.
However, if the current short-term negative sentiment prevails, the bears could easily push the price below $41,000 and take a profit of $132 million.
Currently, data from the options markets slightly favors put options, but the outcome remains to be seen.
The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.