Bitcoin (BTC), investors are not comfortable adding positions following the latest 40% correction to the Nov. 10 all-time high of $69,000. The prolonged downtrend is not the only factor affecting risk-on assets. On Dec. 15, the United States Federal Reserve made remarks about rising interest rates.
The Fed indicated that it could increase its benchmark rate by three times this year, and plans are in place to accelerate its asset buying taper.
These plans are feared by traders as liquidity will not be available “as easily” in the crypto and traditional markets.
Bitcoin price at Coinbase USD (right) vs. China’s stock market MSCI Index (left)
The regulation of cryptoassets in the United States has been under the spotlight. Recently, a member from the Securities and Exchange Commission’s Investor Advisory Committee asked for public comments on digital asset regulation.
J.W., associate law professor, addressed the petition to Vanessa Countryman on Jan. 18. Verret addressed Verret’s petition to SEC Secretary Vanessa Countryman. Verret stated that the SEC does not recognize digital assets as falling within the equity investment regulatory framework.
The professor also asked about the criteria the SEC would consider when approving a Bitcoin spot-exchange-traded fund.
Options worth $590 million expire Jan. 21
According to the Jan. 21 options expiry, Bitcoin derivatives traders did not expect prices below $44,000, even though it is correlated with traditional markets. If BTC trades lower than $41,000, bears will be able to earn up to $82million thanks to Friday’s $590,000,000 open interest.
Bitcoin options open interest aggregated for Jan. 21. Source: Coinglass.com
The $380 million call options (buy) seem to be more expensive than the $210 million put instruments (sell). However, the 1.81 call/put ratio is misleading because of recent price drops that will likely eliminate most bullish bets.
If Bitcoin is trading below $44,000, the right to purchase Bitcoin is worthless. If Bitcoin is trading below $44,000 by Jan. 21 at 8:00 UTC, only $64,000,000 of these call (buy) options may be available at the expiry.
Bitcoin prices below $42,000 are a comfort to bears
These are the most likely outcomes for Jan. 21’s expiry of $590 million options. The theoretical profit is the ratio of each side to the imbalance. The expiry price determines the amount of active call (buy) or put (sell) contracts.
30 calls for between $40,000 and $41,000 vs. 3320 puts. The net result favors the put (bear), options. Between $41,000 and $42,000, 170 calls vs. 2180 puts. The net result favors the put (bear), instruments. Between $42,000 and $44,000, 1,480 calls vs. 1,130 lets. The net result is balanced between put and call options. Between $44,000 and $45,000, there are 2,980 calls and 630 puts. By $103 million, the net result favors bull (call) instruments.
This rough estimate includes put options used in bearish bets, and call options only in neutral-to bullish trades. This simplifies investment strategies that are more complicated.
To make a $103 Million profit, bulls will need $44,000
Market weakness could be due to regulatory uncertainty and Federal Reserve monetary policy policies. However, a mere 5% price boost from the current $42,000 level will allow Bitcoin bulls $103 million in profit on January 21st.
If the current negative sentiment prevails, bears can easily push the price below $41,000 to pocket $132million gains.
The current options market data favors the sell (put) option, but it is still too early to predict the outcome.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.