Bitcoin (BTC) the price has been on a downward trend since the all-time high of $ 69,000 on November 10, when the Labor report showed inflation rose above 6.2% in the United States. While this news could be beneficial to non-inflationary assets, VanEck's physical Bitcoin denial of an exchange-traded fund (ETF) by the United States 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 cited the inability to avoid market manipulation in the broader Bitcoin market due to unregulated exchanges and 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 next reduction in the bond buyback program and Fed assets, Bitcoin moves 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. Furthermore, the yield drop in the last three weeks from 1.64 to 1.43 partially explains the weakness seen in the crypto market.
Obviously there are other factors at play, for example, the market pullback on November 26 was primarily based on concerns about the new COVID-19 variant. Regarding derivatives markets, a Bitcoin price below $ 48,000 gives bears complete control over the expiration of Friday's $ 755 million BTC options.
At first glance, the $ 470 million call options dwarf the $ 285 million put (sell) instruments, but the 1.64 call-put ratio is misleading because the 14% price drop from 30 November will likely wipe out most of the 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 trades below that price.
Bears are comfortable with Bitcoin below $ 57,000
These are the three most likely scenarios for the expiration of Friday's $ 755 million options. The imbalance that favors each side represents the theoretical benefit. In other words, depending on the expiration price, the number of call (buy) and put (sell) contracts that are activated varies:
- Between $ 45,000 and $ 47,000: 110 calls versus 2,400 put options. The net result is 105 million dollars that favor the put options (bearish).
- Between $ 47,000 and $ 48,000: 280 calls versus 1,900 put options. The net result is $ 75 million in favor of put 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 call options that are used in bullish bets and put options exclusively in neutral to bearish operations. However, this oversimplification ignores 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 the bulls 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 make gains of 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. Every investment and commercial movement involves a risk. You should do your own research when making a decision.
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