Price action gave bears the false impression that an expiration of options below $15,500 on December 9 was a possibility, but these bets are unlikely to pay off as the deadline approaches.
To date, Bitcoin is down 65% from 2022, but the leading cryptocurrency remains in the top 30 globally tradable asset classes ahead of tech giants like Meta Platforms (META), Samsung (005930.KS) and Coca-Cola (KO) .
The main concern for investors remains the possibility of a recession if the US Federal Reserve raises interest rates for longer than expected. Proof of this comes from December 2 data which showed that 263,000 jobs were created in November, indicating that the Fed’s efforts to slow the economy and reduce inflation are still in progress.
On December 7, Wells Fargo CEO Azhar Iqbal wrote in a note to clients that “all financial indicators point to a looming recession.” “If we take into account the inverted yield curve, the markets are clearly preparing for a recession in 2023,” Iqbal added.
The bears were overly pessimistic and would suffer the consequences
The open interest for the options expiration on December 9 is $320 million, but the actual figure will be lower because the bears were expecting price levels below $15,500. These traders became confident after bitcoin traded below $16,000 on November 22.
Bitcoin options pool open interest on 9th december. Source: CoinGlass
The call-to-call ratio of 1.19 reflects the imbalance between the open interest to put (call) of $175 million and put (put) options of $145 million. Currently, the price of Bitcoin is at $16,900, which means that most of the bearish bets will likely turn out to be worthless.
If the price of Bitcoin remains near $17,000 at 8:00 AM UTC on December 9, only $16 million worth of put (put) options will be available. This difference occurs because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC trades above that level at expiration.
The bulls aim for $18,000 to secure a profit of $130 million
Here are the four most likely scenarios based on the current price action. The number of options contracts available on December 9 for the buy (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical gain:
Between $15,500 and $16,500: 200 calls for 2,100 points. Net result favor puts (Bear) $30 million.
Between $16,500 and $17,000: 1,700 calls for 1,500 points. The net result is balanced between bears and bulls.
Between $17,000 and $18,000: 5,500 calls for 100 puts. Net score favors Buy Instruments (Taurus) by $100 million.
Between $18,000 and $18,500: 7,300 calls for a zero put. The bulls are completely in control of the expiry with a profit of $130 million.
This crude estimate takes into account buy options used in bearish bets and call options exclusively in neutral to bullish trades. However, this oversimplification 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 estimate this effect.
Related: Institutional Investors Still Eyeing Cryptocurrencies Despite FTX Crash
It is likely that the bulls will have less margin to support the price
Bitcoin bulls need to push the price above $18,000 on Friday to secure a potential profit of $130 million. On the other hand, the best case scenario for bears requires a slight push below $16,500 to maximize their gains.
Bitcoin bulls liquidated long positions worth $230 million in two days, so they may have less margin needed to support the price.
Given the negative pressure from traditional markets due to recession fears and interest rate hikes, bears are likely to avoid losses by holding Bitcoin below $17,000 on December 9.