The options to buy bitcoin in the CME Group’s futures market expire on Friday, with data pointing to a sub-$55K price. The expiration date is expected to be one of the most important dates for BTC since its all-time high nearly $20k back in December 2017. But before you put your money down and sell it at these prices, here are three reasons why this might not happen as planned.
Bitcoin prices are about to hit their lowest point in 2018, as the $1.1B in options expire on Friday that will likely cause a drop in BTC price. However, data points to a sub-$55K price. Read more in detail here: bitcoin prices history.
Bulls in Bitcoin (BTC) are still licking their wounds after the violent December 4 correction, which saw the price plummet from $57,000 to $42,000. This 26.5 percent drop resulted in the liquidation of $850 million in long BTC futures contracts, but it also pushed the “Fear and Greed index” to its lowest level since July 21.
FTX’s Bitcoin/USD rate. TradingView is the source of this information.
It’s odd to compare the two occurrences since the July 21 sub-$30,000 low would have wiped all gains in 2021. Meanwhile, the $42,000 low from December 4 represents a year-to-date increase of 44 percent. Compare this to the S&P 500, which has increased by 21% in 2021, and the WTI oil price, which has increased by 41%.
Bulls may be focusing on Bitcoin exchange reserves, which are continuing to decline and are already at their lowest level in three years. According to CryptoQuant statistics, there are presently less than 2.27 million BTC deposited at exchanges, indicating that investors are hesitant to sell in the near term. Many investors view this to be a positive trend.
Bears are better positioned as Bitcoin steadied just over $50,000, despite the seeming parity between call (buy) and put (sell) options on Friday’s $1.1 billion expiration.
Open interest in bitcoin options for October 10th. CoinGlass is the source of this information.
Because the $555 million call (buy) instruments have a bigger open interest than the $520 million put (sell) options, a wider picture utilizing the call-to-put ratio suggests a tiny 7% edge to Bitcoin bulls. The 1.07 signal, on the other hand, is misleading since the 11.5 percent price decrease over the last week rendered most optimistic bets useless.
Only $50 million worth of call (purchase) options will be available if Bitcoin’s price stays below $52,000 by 8:00 a.m. UTC on Dec. 10. Because the right to purchase Bitcoin at $55,000 has no value if it is trading below that price, this consequence occurs.
The data suggests that bulls are in for a big loss.
Based on the present price activity, the three most probable possibilities are shown below. The quantity of bull (call) and bear (put) option contracts available on Dec. 10 varies based on the expiration BTC price. The potential profit is determined by the imbalance favoring either side:
- 400 calls vs. 6,600 puts between $47,000 and $50,000. The overall outcome favors put (bear) instruments by $300 million.
- 1,700 calls vs. 4,700 puts between $50,000 and $54,000. The overall outcome favors the put (bear) instruments by $160 million.
- 2,400 calls vs. 2,900 puts over $54,000. The put (bear) options now have a $30 million advantage.
This rough estimate takes into account call options, which are only used in bullish wagers, and put options, which are only used in neutral-to-bearish transactions. Despite this, more complicated investing methods are ignored by this simplicity.
A trader, for example, may have sold a call option to earn a negative exposure to Bitcoin above a certain price. However, there is no simple method to measure this impact.
Bears will do all they can to keep BTC below $50,000.
To make a $300 million profit, Bitcoin bears need a modest push below $50,000. Bulls, on the other hand, would require a 7.2 percent price rebound from $50,500 to make up half of their loss.
Given the $2 billion liquidation of leveraged long bets on Dec. 4, bulls are likely attempting to keep afloat and will be hesitant to take on further risk at this time. Bullish investors would be wasting their time attempting to recover this short-term loss, which would be counterproductive.
In this case, bears seem to have the upper hand in this weekly options expiration.
The author’s thoughts and opinions are purely his or her own and do not necessarily represent those of Cointelegraph. Every investing and trading decision has some level of risk. When making a choice, you should do your own research.
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