Bitcoin (BTC) ran into fierce resistance at $23,000 after surging 11% on Jan. 20, however, this was enough to cause $335 million in short futures contract liquidations. The 36% year-to-date price increase that allowed the cryptocurrency to reach a peak of $22,500 has caught the bears off guard: these traders are clearly unprepared for the $1.48 billion monthly options expiration scheduled for Jan. 27.
Bitcoin investor sentiment improved after data started showing less inflationary pressure; this may push the US Federal Reserve to cut interest rates and quantitative tightening. Such a trend reversal would benefit risk assets, such as cryptocurrencies.
USD Coin (USDC) peer-to-peer trades in China hit a 3.5% premium against the US dollar on Jan. 22, indicating moderate FOMO among retail traders. This is the highest level in the last six months: excessive buying demand has pushed the indicator above the neutral value.
Bitcoin’s hash rate (i.e. an estimate of the computing power devoted to mining) also recently hit a new all-time high, further supporting the current bullish momentum. The indicator has reached the peak of 276.9 EH/s on 19 Januarysignaling a reversal from the recent weakness caused by miners’ financial difficulties.
Despite Bears’ Efforts, Bitcoin Still Trades Above $20,000 Since Jan. 14: Here’s Why $1.48 billion monthly options expiration will benefit bulls tremendouslydespite the recent failure to break the resistance at $23,200.
Bulls a little too optimistic, but still well positioned
Bitcoin’s January 20 rally caught bears by surprise as only 6% of monthly put (sell) options were placed above $22,000. The bulls are therefore better positioned, even though they have set nearly 40% of their call (buy) options at $23,000 or higher.
A broader view shows more bullish bets: open interest in call options is $790 million, versus $680 million in put options. However, most bearish bets will likely become worthless, as Bitcoin is up 36% in January.
Only $38 million of these put options will be valid if Bitcoin price sustains above $22,000 as of 8:00 UTC on Jan. 27. After all, owning the right to sell Bitcoin at $21,000 is useless if the spot price is higher.
The bears could secure a profit of $595 million
Below are the four most likely scenarios based on the current price movement. The number of contracts available on January 27 for calls (bullish) and put (bearish) instruments varies according to the expiry price. The imbalance in favor of each side constitutes the theoretical profit:
- Between $20,000 and $21,000: 12,800 calls against 7,100 puts. The net result favors the bulls by $115 million.
- Between $21,000 and $22,000: 17,600 calls against 2,800 puts. The net result favors the bulls by $320 million.
- Between $22,000 and $23,000: 21,200 calls against 1,100 puts. The bulls remain in control, making $455 million.
- Between $23,000 and $24,000: 25,300 calls against 0 puts. In this case, the bulls completely dominate the expiration, accumulating $595 million.
However, it should be emphasized that this is a very simplified estimate, in which call options are used only in bullish bets and put options in neutral or bearish operations. Potential more complex investment strategies are therefore ignored.
Bitcoin bears will have to push the price below $21,000 on Jan. 27 to significantly cut their losses. However, the bears recently liquidated $335 million due to leveraged short futures, so they probably have less room to exert pressure in the near term.
As a result, the most likely scenario for the January Bitcoin monthly options expiration is $22,000 or above – a good win for the bulls.
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