Bitcoin

The market is recovering slightly after the FOMC meeting, but Bitcoin bears still have the short-term advantage

Both the crypto and stock markets rebounded shortly after the Federal Reserve (Fed) released its policy roadmap for 2022, but the bears still have the upper hand when it comes to bitcoin options expiring for $ 755 million tomorrow goes.

Bitcoin price has been on a downward trend since its all-time high (ATH) of $ 69,000 on November 10 when US inflation surged above 6.2%. While this news could benefit non-inflationary assets, the US Securities and Exchange Commission (SEC) rejection of VanEck’s Spot Bitcoin Exchange Traded Fund (ETF) on November 12 surprised some investors.

BTCUSD price chart | Source: TradingView

While it is not uncommon in the industry to reject an application or to extend the deadline to decide on an ETF, the reasons given by the regulator may worry some investors. The SEC says the refusal is to avoid manipulation in the broader Bitcoin market due to unregulated exchanges and large trading volumes based on Tether’s stablecoin (USDT).

Analysis of the broader structure of the market is extremely relevant, especially as investors keep a close eye on the Fed’s meetings. Regardless of the magnitude of the Fed’s upcoming cuts in bond and security purchases, Bitcoin’s movement over the past 12 months has followed the yields of 10-year US Treasuries.

BTC / USD chart (orange, left) vs. 10-year US Treasuries (blue, right) | Source: TradingView

This close correlation suggests that the Fed’s monetary policy was critical to riskier assets, including Bitcoin. In addition, the decline in yields over the past three weeks from 1.64 to 1.43 explains in part the weakness of the crypto market.

Of course, important factors play a role here, for example the market slump on November 26th was mainly based on concerns about a new Covid-19 variant. In terms of the derivatives market, a bitcoin price below $ 48,000 will give the bears full control over the expiration of $ 755 million worth of bitcoin options tomorrow (Dec. 17).

Bitcoin Options Open Rate Summary for December 17th | Source: Coinglass.com

The $ 470 million call option dwarfs the $ 285 million put option, but the 1.64 call-to-put ratio is imprecise due to the discount. 14% as of Nov. 30 will likely nullify most bullish bets.

If Bitcoin price stays below $ 49,000 at 3:00 p.m. GMT on December 17, there will be only $ 28 million in call options available when it expires. In short, the right to buy Bitcoin for $ 49,000 would be worthless if it traded below that price.

Bears have an overwhelming advantage when Bitcoin is below $ 47,000

Here are the three most likely scenarios for the $ 755 million option expiring tomorrow. The imbalance in favor of each party represents the theoretical profit. In other words, depending on the price at expiry, the number of active put and call contracts varies:

  • From $ 45,000 to $ 47,000: 110 buy orders vs. 2,400 sell orders. The net result is $ 105 million in favor of the put (bear).
  • From $ 47,000 to $ 48,000: 280 buy orders vs. 1,900 sell orders. The net result is $ 75 million in favor of the put (bear).
  • From $ 48,000 to $ 50,000: 1,190 buy orders vs. 1,130 sell orders. The net result is the balance between a call and a put.

This rough estimate looks at calls in bullish bets and calls in neutral to bearish trades. However, this simplification does not imply more complex investment strategies.

Bulls have to hold Bitcoin above $ 48,000 to keep the balance

The only way for the bulls to avoid significant losses at the end of December 17th is to keep the Bitcoin price above $ 48,000. However, if the current negative short-term sentiment prevails, the bears can easily push the price down 4% from the current $ 48,500 mark and make a profit of up to $ 105 million if Bitcoin price is below $ 47,000.

At the moment the options market data is slightly skewed towards puts, creating an opportunity for additional downward pressure.

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Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.

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