Derivatives data suggests that Bitcoin’s $39K bounce was a mere blip

BTC (Bitcoin) bulls will probably be disappointed at how 2022 started, especially considering that the cryptocurrency plummeted over 20% in the first 25 Days of the year. Surprisingly, the $32,930 price bottom on January 21 was the lowest BTC price in six months. However, equity markets measured by S&P500 reached a record high on Jan 4.

After the U.S. Federal Reserve declared its intention to increase interest rates over the next few months to slow the rising inflation, the risk market sell-off accelerated. Invesco China Technology ETF, (CQQQ), traded below $58 on January 22, which is a 20% decline from its peak of Nov. 12.

The sector continues to be affected by regulatory uncertainties. Patrick McHenry, a United States Congressman, described the “inconsistent treat and jurisdictional uncertainty” regarding crypto as a problem. McHenry suggested that Congress should remove crypto regulation from courts and executive agencies.

The Bitcoin price has recovered but the bulls remain in trouble

After the Jan. 26 partial recovery of 12% to $38,100, Bitcoin bulls have very little to celebrate. BTC’s price has fallen 35% in the past two month. More importantly, bears will make $350 million if Bitcoin trades below $38,000 before the Jan. 28th monthly options expire.

Bitcoin options open interest aggregate for Jan. 28. Source: Coinglass

The $1.52 Billion call (buy) options seem to outweigh the $760 M in put options. However, the 1.96 call/put ratio is misleading because of recent price drops that will likely erase most bullish bets.

If Bitcoin’s price is below $38,000 at 8:08 AM UTC on January 28, then only $72 million worth (buy) call options will be available at expiry. If Bitcoin is trading below $38,000, the right to purchase Bitcoin at $38,000 is worthless.

Even though Bitcoin is close to $39,000, Bears make $315 Million profit

These are the most likely outcomes for the $2.3 Billion options that expire on January 14. The theoretical profit is represented by the imbalance in favor of each side. The actual outcome of the expiry price will determine the amount of active call (buy) or put (sell) contracts.

Between $35,000 to $37,000: 660 calls against 13,550 puts. The net result favors the put (bear), options. Between $37,000 and $39,000, 1,300 calls vs. 13100 puts. The net result favors the put (bear), options. Between $39,000 and $41,000, 3,710 calls vs. 8,170 put. The net result favors bears of $180 million.

This rough estimate includes call options used in bullish bets, and put options only in neutral-to bearish trades. This simplifies investment strategies that are more complicated.

A trader might have sold a call option to gain negative exposure to Bitcoin above a certain price. Unfortunately, it’s not possible to accurately estimate the effect.

It’s still expensive to buy a house in $40,000

Although it may seem easy to raise Bitcoin’s price by 3% and increase the expiry price to $39,000 on Friday, it is not. Bulls won’t be able to pull it off due to negative news about regulation and tightening monetary policy.

If the current negative sentiment prevails, bears can easily push the price down by 3% to $36,900 from its current $38,100 and make a profit of $450 million.

The bears dominate January 28th, and the expiry of monthly options gives little hope of a $40,000 price rebound in the near-term.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

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 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.

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