Bitcoin (BTC’s) price has fallen since Nov. 10, when it hit $69,000, which was the all-time high. The Labor report indicated that inflation had risen to 6.2% in the United States. This news may be good for non-inflationary assets. However, some investors were caught off guard by the U.S Securities and Exchange Commission (SEC), denial of VanEck’s physical Bitcoin exchange-traded funds (ETF).
Coinbase: Bitcoin/USD Price Source: TradingView
Although the ETF request rejection was expected, some investors may find the reasons for the denial concerning worrying. The U.S. SEC stated that market manipulations on the wider Bitcoin market were impossible due to unregulated exchanges, heavy trading volume and Tether’s stablecoin (USDT).
It is important to analyze the market structure in general, particularly considering the fact that investors closely follow meetings of the U.S. Federal Reserve. The movements of Bitcoin have tracked the U.S Treasury yields for the past 12 months, regardless of the Fed’s upcoming tapering.
Bitcoin/USD at the FTX (orange) vs. U.S. 10 year Treasury Yields(blue, right). TradingView
This close correlation shows how important the Federal Reserve’s monetary policies have been in dealing with riskier assets such as Bitcoin. The weakness in the crypto market is partially explained by the decline in yield over the last three weeks, from 1.64 to 1.43.
There are other factors as well. For example, the Nov. 26 market pullback was primarily due to concerns about the COVID-19 variant. In the derivatives market, a Bitcoin price lower than $48,000 allows bears to control Friday’s 755 million BTC option expiry.
Bitcoin options for Dec. 17 aggregate open interest Source: Coinglass.com
The $470 million call options (buy) seem to outweigh the $285 millions put (sell) instruments. However, the 1.64 call/put ratio is misleading because of the 14% drop in prices since Nov. 30, which will likely wipe out most bullish bets.
Only $28 million worth (call or buy) options will be available for expiry if Bitcoin’s price is below $49,000 on December 17th at 8:00 UTC. If Bitcoin is trading below $49,000, the right to purchase Bitcoin is worthless.
Bitcoin is below $57,000 for bears
These are the most likely scenarios that will result in Friday’s $755 million options expiring. The theoretical profit is the ratio of each side to the other. The expiry price determines the amount of active call (buy) or put (sell) contracts.
110 calls vs. 2,400 put. The net result favors the put (bear), options. Between $47,000 and $48,000, 280 calls vs. 1,900 lets. 75 million dollars favor the put (bear), instruments. Between $48,000 and $50,000, 1,190 calls vs. 1,130 lets. The net result is a balance between put and call options.
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 put option to gain exposure to Bitcoin (BTC), above a certain price. Unfortunately, it’s not possible to accurately estimate the effect.
To balance the scales, bulls require $48,000 or more
Bulls can avoid significant losses in Dec. 17 expiry by keeping Bitcoin’s price above $48,000. If the current negative sentiment prevails, bears can easily push the price down by 4% from its current $48,500, and profit up to $105,000,000 if Bitcoin’s price remains below $47,000
The current options market data favors the put (sell), which creates opportunities for further negative pressure.
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.