What Left for Bulls After Today’s $590 Million Bitcoin Options Expiration?

Regulatory uncertainty and tighter monetary policy continue to impact bitcoin price, but data shows bulls are attempting to reverse the situation.

Investors seem uncomfortable that bitcoin lost nearly 42% of its value from its all-time high (ATH) of $69,000 recorded on Nov. 10. In addition to an ongoing downtrend, comments from the US Federal Reserve (Fed) on December 15 about an interest rate hike also weighed on risky assets.

The Fed has signaled it could raise rates three times this year and plans to accelerate its asset purchases.

As a result, investors fear that these systems will negatively impact the crypto and traditional markets as liquidity will no longer be “easy”.

BTC/USD price chart (green) vs. MSCI China Stock Market Index (orange)

Crypto regulation in the United States is in the spotlight, and recently a member of the Securities and Exchange Commission’s (SEC) Investor Advisory Committee called on the agency to expand its comments on the regulation of digital assets.

On Jan. 18, associate law professor JW Verret filed a petition with SEC Secretary Vanessa Countryman that digital assets do not fit within a regulatory framework designed for stock investing.

Verret also questioned the requirements the SEC would consider when approving a Bitcoin exchange-traded fund (ETF) in the spot market.

$590 million worth of options expiring today

Although believed to be correlated with traditional markets, investors in the Bitcoin derivatives market do not expect a price below $44,000 on the option’s expiry date (January 21). An open interest (OI) of $590 million will allow the bears to gain up to $82 million if Bitcoin trades below $41,000 at expiration today.

Bitcoin Options Open Interest Summary for Jan 21st | The source: Coinglass.com

The $380 million call options outperform the $210 million put options, but the 1.81 call-to-put ratio is inaccurate because the recent price drop is likely to wipe out most bullish bets .

The right to buy bitcoin at $44,000 has no value if it is trading below that price. So if Bitcoin stays below $44,000 at 15:00 GMT on January 21, only $64 million of those calls will be available at expiry.

Bears take solace if bitcoin price falls below $42,000

Here are the four most likely scenarios for $590 million worth of options expiring this afternoon. The imbalance in favor of each side represents the theoretical profit. In other words, depending on the expiry price, the number of active buy and sell contracts varies:

• From $40,000 to $41,000: 30 buy orders versus 3,320 sell orders. The net result is $132 million in favor of the put (bears).
• From $41,000 to $42,000: 170 buy orders versus 2,180 sell orders. The net result is $82 million in favor of the put (bears).
• From $42,000 to $44,000: 1,480 buy orders versus 1,130 sell orders. The net result is a balance between a call and a put.
• From $44,000 to $45,000: 2,980 buy orders vs. 630 sell orders. The net result will give the bulls a profit of $103 million.

This rough estimate accounts for put options used in bearish bets and calls strictly for neutral to bullish trades. However, this oversimplification does not imply more complex investment strategies.

Bulls need $44,000 for a $103 million profit

Regulatory uncertainty and Fed monetary policy could be at the root of recent market weakness, but a 10 percent rally from $39,933 currently awaits bulls, $103 million by Jan. 21 expiry.

Bitcoin price chart | Source: Trade View

However, if the current short-term negative sentiment prevails, the bears can easily push the price below $41,000 and take $132 million.

Currently, options market data is slightly skewed towards puts, but results will not be accurate until expiry.

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