Bitcoin price dropped to $15,500 on November 21. It brought the price to a two-year low. The 2-day correction hit an 8 percent downtrend overall. Deleted $230 million leveraged long (buy) futures contracts. So what’s next? How will the price be affected?
Bitcoin price misunderstood
Price action has given the bears the wrong impression that a maturity below $15,500 is possible at options expiration on Dec. But these bets are unlikely to pay off as the deadline approaches. As we reported on Kriptokoin.com, since the beginning of the year, the price of Bitcoin has dropped 65 percent for 2022. Investors’ main concern is the possibility of a recession if the Federal Reserve raises interest rates longer than expected.
Evidence of this is the December 2 data, which shows that 263,000 jobs were created in November. According to experts, this indicates that the Fed’s efforts to slow the economy and reduce inflation are still ongoing. “To all, financial indicators point to a recession on the horizon,” Wells Fargo director Azhar Iqbal said in a note to clients on Dec. “Taken with the inverted yield curve, markets are clearly poised for a recession in 2023,” Iqbal said.
Those waiting for a drop for Bitcoin became pessimistic
The open interest for the December 9 option expiration is $320 million, but the actual figure will be lower as bears expect price levels below $15,500. These traders became overconfident after Bitcoin traded below $16,000 on November 22. The 1.19 buy-to-sell ratio reflects the imbalance between $175 million call open interest and $145 million put options. Currently, Bitcoin stands at $16,900 which means most bearish bets will likely become worthless.
If the price of Bitcoin stays near $17,000 on December 9, 11, this put option will only be worth $16 million. This difference is due to the fact that the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC trades above this level at expiration.
Bulls target $18,000 to make $130M profit
Below are the four most likely scenarios based on the current price action. The number of options contracts available for buy (bullish) and put (bear) instruments on December 9 varies depending on the expiry price. The imbalance in favor of both parties constitutes the theoretical profit. Here are the scenarios that analyst Marcel Pechman pointed out:
- Bitcoin between $15,500 and $16,500: 200 buys and 2,100 sells. The net result is that put (bear) instruments are backed by $30 million.
- Bitcoin between $16,500 and $17,000: 1,700 buys and 1,500 sells. The net result is balanced between bears and bulls.
- Bitcoin between $17,000 and $18,000: 100 sells against 5,500 buys. Net result, buy (bull) instruments are backed by $100 million.
- Bitcoin between $18,000 and $18,500: 7,300 buys versus 0 sells. The bulls completely dominate the expiry, making a profit of $130 million.
This rough estimate considers put options used in bearish bets and specifically call options in neutral-bullish trades. However, this editorial ignores more complex investment strategies.
The bulls probably have less margin to support the price
Bitcoin bulls need to push the price above $18,000 on Friday to secure a potential profit of $130 million. On the other hand, the best-case scenario for bears requires slight momentum below $16,500 to maximize gains.
Bitcoin bulls pointed to $230 million leveraged long positions that were liquidated within two days. Therefore, they may have less margin to support the price. Given the negative pressure from traditional markets due to recession concerns and rising interest rates, the bears will likely avoid a loss by keeping Bitcoin below $17,000 on Dec.
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