Bitcoin investor sentiment has improved after signals of easing inflationary pressures suggest the US Federal Reserve (Fed) may soon move away from rate hikes and quantitative tightening. Trend changes, commonly known as pivots, benefit risky assets such as cryptocurrencies.
On January 22nd, China-based USD Coin (USDC) peer-to-peer trading hit a 3.5% premium to the US dollar. FOMO by retailersThis level is the highest in over six months, suggesting excessive crypto buying demand is pushing the indicator above fair value.
The all-time high for the 7-day Bitcoin hash rate (an estimate of processing power dedicated to mining) also supports the bullish momentum. The metric he peaked at 276.9 exo his hashes per second (EH/s) on January 19, Miners facing financial hardship.
Despite the best efforts of the bears, Bitcoin has been trading above $20,000 since January 14th. This is a move that explains why Bitcoin’s $1.48 billion monthly option expiry is a big win for the bulls, despite its recent failure to break the $23,200 resistance.
Bulls Overly Optimistic, But Hold Good Position
Bitcoin’s latest rally on Jan. 20 surprised the bears as just 6% of monthly expiring put (sell) options were above $22,000. Therefore, the bull is well positioned even though he has placed nearly 40% of his call (buy) options above $23,000.
A wider view using the 1.15 call-to-put ratio shows a more bullish bet as the call (buy) open interest is $790 million against the $680 million put (sell) option . Nonetheless, with Bitcoin up 36% in January, most bearish bets are likely worthless.
Only $38 million worth of these put options will be available if the price of Bitcoin exceeds $22,000 on January 27th at 8:00 AM UTC. This difference arises because the right to sell bitcoin at $21,000 or $22,000 does not make sense if bitcoin trades higher at expiry.
Bears could secure $595 million profit
Below are the four most likely scenarios based on the current price action. The number of call (bullish) and put (bearish) option contracts available on January 27 depends on the expiry price. An imbalance in favor of both sides constitutes a theoretical gain.
- $20,000 – $21,000: 12,800 calls and 7,100 puts. The net result favors the bulls by $115 million.
- $21,000 – $22,000: 17,600 calls versus 2,800 puts. The net result favors the bulls by $320 million.
- $22,000 – $23,000: 21,200 calls versus 1,100 puts. The bulls continue to dominate, with profits of $455 million.
- $23,000 – $24,000: 25,300 calls versus 0 puts. The bulls completely dominated the expiry, piling up $595 million.
This rough estimate takes into account call options used in bullish bets and put options used in neutral to bearish trades only. Yet this oversimplification ignores more complex investment strategies.
Related: Bitcoin Set To Shake Up Against Gold, Stocks As BTC Price Drops Below $22.5K
Bitcoin bears need to push the price below $21,000 on Jan. 27 to cut their losses significantly. However, the Bitcoin bears recently had a liquidated short position in leveraged futures worth $335 million, so they may need less margin to power in the short term.
Therefore, the most likely scenario for January monthly BTC option expiration is the $22,000 level and above, giving the bulls a decent win.
Bitcoin (Bitcoin) faced stiff resistance at $23,000 after rising 11% on Jan. 20, but it was enough to generate $335 million in liquidation of short positions using futures contracts. A 36% year-to-date gain to $22,500 leaves the bears unprepared for $1.48 billion monthly options that expire Jan. 27.
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