The price of Bitcoin (BTC) has been on a downward trend from the all-time high of $ 69,000 on November 10, when the Labor report showed inflation topping 6.2% in the United States. While this news could be beneficial for non-inflationary assets, the rejection of VanEck’s physical Bitcoin exchange-traded fund (ETF) by the US Securities and Exchange Commission (SEC) on November 12 took some investors by surprise.
While the denial of the ETF application was generally expected, the reasons given by the regulator may be concerning to some investors. The US SEC alleged the inability to prevent market manipulation in the Bitcoin market in general due to unregulated exchanges and the large trading volume based on the stablecoin Tether (USDT).
The analysis of the broader structure of the market is extremely relevant, especially considering that investors closely monitor the meetings held by the US Federal Reserve regardless of the magnitude of the upcoming reduction in the bond and asset buyback program. from the Fed, Bitcoin movements have been tracking US Treasury yields for the past 12 months.
This close correlation shows how decisive the Federal Reserve’s monetary policy has been with the riskiest assets, including Bitcoin. In addition, the decline in performance in the last three weeks, from 1.64 to 1.43, partly explains the weakness observed in the cryptocurrency market.
Obviously there are other factors at play, for example, the market pullback on November 26 was mainly based on concern about the new variant of COVID-19. As for derivatives markets, a Bitcoin price below $ 48,000 gives bears full control over Friday’s $ 755 million BTC option expiration.
Naked eye, the $ 470 million in call options dwarfs the $ 285 million in put instruments, But the 1.64 call / put ratio is misleading because the 14% price drop since Nov. 30 will likely eliminate most bullish bets.
If the price of Bitcoin remains below $ 49,000 at 8:00 am UTC on December 17, only $ 28 million of those call options will be available at expiration. In short, there is no value in the right to buy Bitcoin at $ 49,000 if it is trading below that price.
Bears are comfortable with Bitcoin below $ 57,000
These are the three most likely scenarios for the $ 755 million option expiration on Friday. The imbalance that favors each side represents the theoretical benefit. That is, depending on the expiration price, the number of purchase (call) and sale (put) contracts that are activated varies:
- Between $ 45,000 and $ 47,000: 110 call options vs. 2,400 put options. The net result is USD105 million in favor of the sale instruments (bearish).
- Between $ 47,000 and $ 48,000: 280 call options vs. 1,900 put options. The net result is USD 75 million in favor of the sale instruments (bearish).
- Between $ 48,000 and $ 50,000: 1,190 call options vs. 1,130 put options. The net result is balanced between the call and put options.
This gross estimate considers that call options are used in bullish bets and put options exclusively in neutral or bearish operations. However, this oversimplification does not take into account more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin (BTC) above a specific price. But unfortunately, there is no easy way to estimate this effect.
Bulls need $ 48,000 or more to balance the scale
The only way for the bulls to avoid a significant loss on the December 17 expiration is by holding the price of Bitcoin above $ 48,000. However, if the current short-term negative sentiment prevails, the bears could easily push the price down 4% from the current $ 48,500 and gain up to $ 105 million if the price of Bitcoin stays below $. 47,000.
Currently, data from the options markets slightly favors put options, thus creating opportunities for additional negative pressure.
The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.
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