Bitcoin bulls and bears are now fighting. With options, data bulls are in a more favorable position, while bears got $35 million in liquidated futures positions
Bitcoin's price experienced intense resistance at $23,000 after an 11% increase on Jan. 20, but this was enough to cause $335 million in liquidations for short positions using futures contracts. The 36% increase to $22,500 over the course of the year led to bears being unprepared for the $1.48 billion in monthly options expiring on Jan. 27.
Bitcoin sentiment improved after indications that inflation was unlikely to increase led investors to believe that the U.S. Federal Reserve would soon abandon its interest rate increase and quantitative easing. Commonly referred to as a pivot, the trend change would benefit cryptocurrencies considered riskier.
On January 22, the price of USD Coin (USDC) traded on peer-to-peer exchanges in China increased by 3.5% in comparison to the U.S. dollar, this indicated that retail traders had a moderate degree of FOMO. This level is the highest for over six months, which suggests that excessive demand for cryptocurrencies has pushed the indicator past its actual value.
The highest hash rate on the seven-day clock for Bitcoin — an estimate of the amount of power dedicated to mining — also supported the bullish trend. The gauge peaked at 276.9 EH/s on Jan. 19, which was attributed to a reversal of the recent decline that was caused by miners who were experiencing financial hardship.
Despite the bears' best efforts, Bitcoin has traded above $20,000 since Jan. 14, this movement is believed to be the reason for the $1.48 billion in Bitcoin monthly options that will benefit the bulls despite the lack of a successful break of the $23,200 resistance in recent months.
The recent surge in Bitcoin on Jan. 20th surprised the bearers, as only 6% of the put options with a monthly expiration date were placed above $22,000. As a result, bulls have a more advantageous position even though they participate in nearly 40% of their calls (buy) at or above $23,000.
Bitcoin options aggregate open interest. Source - CoinGlass
A more expansive perspective using the 1.15 ratio that calls are priced higher than put options results in more bullish bets, as the call (buy) open interest is $790 million against the $680 million put (sell) options. However, the majority of bearish bets will likely be wasted as Bitcoin increased by 36% in January.
If Bitcoin's value remains above $22,000 on Jan. 27th at 8:00 a.m. UTC, only $38 million worth of these options will be available. This discrepancy is caused by the lack of value in the right to sell Bitcoin for $21,000 or $22,000 during the trade, as its value will increase on expiration.
Below are the four most likely scenarios that are likely based on the current price movement. The variety of options contracts available on Jan. 27 for call and put options varies, depending on the expiration price. The imbalance that favors one side is the theoretical profit.
This cursory assessment takes into account bullish call options and neutral-to-bearish put options but excludes bearish call options. However, this overgeneralization overlooks more intricate investment strategies.
Bears must push the price down to $21,000 or below on January 27th in order to reduce their losses. However, recently, Bitcoin bears had a total of $35 million in liquidated futures positions that were leveraged, this indicates that they have less leverage to exert power in the short term.
As a result, the most likely scenario for the January monthly BTC options is $22,000 or higher, this would provide a decent profit for bulls.
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