Markets rally after FOMC meeting, but Bitcoin bears still have a short-term advantage
The price of Bitcoin (BTC) has been trending lower from an all-time high of $ 69,000 on November 10, when Labor’s report showed inflation exceeding 6.2% in the United States. While this news may be good for non-inflationary assets, the denial of physical Bitcoin exchange-traded fund (ETF) VanEck by the United States Securities and Exchange Commission (SEC) on November 12 caught some investors off guard.
While the refusal of the ETF’s request was generally expected, the reasons given by the regulator may worry some investors. The US SEC cited the inability to avoid market manipulation in the larger Bitcoin market due to unregulated trading and large trading volume based on Tether stablecoin (USDT).
Analysis of the broader structure of the market is extremely relevant, especially as investors closely monitor meetings hosted by the US Federal Reserve. Regardless of the size of the upcoming reduction in the Fed’s bond and asset buyback program, Bitcoin’s moves have tracked US Treasury yields for the past 12 months.
This close correlation shows how decisive the Federal Reserve’s monetary policy has been with riskier assets, including Bitcoin. Additionally, the drop in yield over the past three weeks from 1.64 to 1.43 is part of the reason for the weakness seen in the crypto market.
Obviously, other factors come into play, for example, the market pullback on November 26 was primarily based on concerns about the new COVID-19 variant. When it comes to derivatives markets, a Bitcoin price below $ 48,000 gives bears full control over the $ 755 million BTC options expiration on Friday.
At first glance, the $ 470 million call (call) options eclipse the $ 285 million sell (sell) instruments, but the call-to-put ratio of 1.64 is misleading as the price drop. 14% since November 30 will likely erase most bullish bets.
If Bitcoin’s price remains below $ 49,000 at 8:00 a.m. UTC on December 17, only $ 28 million of those call (buy) options will be available upon expiration. In short, the right to buy Bitcoin at $ 49,000 has no value if it is trading below that price.
Bears are comfortable with Bitcoin below $ 57,000
Here are the three most likely scenarios for the $ 755 million options expiration on Friday. The imbalance in favor of each side represents the theoretical profit. In other words, depending on the expiration price, the amount of buy (buy) and sell (sell) contracts that become active varies:
- Between $ 45,000 and $ 47,000: 110 calls against 2,400 put options. Net income is $ 105 million in favor of put (bear) options.
- Between $ 47,000 and $ 48,000: 280 calls against 1,900 put options. Net income is $ 75 million in favor of put (bear) instruments.
- Between $ 48,000 and $ 50,000: 1,190 calls against 1,130 put options. The net result is balanced between call and put options.
This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. However, this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a put option, thereby 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 Scales
The only way for the bulls to avoid a large loss at the December 17th expiration is to keep the price of Bitcoin above $ 48,000. However, if the current negative short-term sentiment prevails, bears could easily drive the price down 4% from the current $ 48,500 and make profits of up to $ 105 million if the price of Bitcoin stays below $ 47. $ 000.
Currently, options market data slightly favors put (put) options, creating opportunities for further 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 trade move involves risk. You should do your own research before making a decision.