Bitcoin (BTC) faced a 7.3% drop between November 20 and 21 as it tested the $15,500 support. While the correction may seem small, the move resulted in $230 million in futures contract liquidations. As a result, leveraged bulls exited with little positive anticipation for the November 25 expiration of $1.14 billion Monthly Options.
Bitcoin investor sentiment soured after Genesis Trading, part of the Digital Currency Group (DCG) conglomerate, stopped payments from its cryptocurrency lending arm on November 16. More importantly, DCG owns the Grayscale fund management company, which is responsible for the largest bitcoin investment vehicle, the Grayscale Bitcoin Trust (GBTC).
In addition, bitcoin miner Core Scientific has expressed “significant doubt” that it will continue operating for the next 12 months due to its financial uncertainty. In its quarterly report filed with the US Securities and Exchange Commission (SEC) on November 22, the company reported a net loss of $434.8 million in the third quarter of 2022.
Meanwhile, New York Attorney General Letitia James sent a letter to members of the United States Congress on November 22, proposing a ban on buying cryptocurrencies using funds in IRAs and defined contribution plans on such as 401(k) and 457 plans.
Despite the best efforts of the bulls, bitcoin has been unable to post a daily close above $17,000 since November 11. This move explains why the November 25 expiration of a $1.14 billion monthly bitcoin option could benefit bears, despite a 6% recovery from the $15,500 low.
Most bullish bets are above $18,000
Bitcoin’s steep 27.4% correction, which failed to clear the $21,500 resistance on November 5, surprised bulls, as only 17% of monthly expiration call options were placed below $18,000. Therefore, the bears will be better even if they have placed fewer bets.
A broader view using the call/put ratio of 1.14 shows more bullish bets as open interest for call options stands at $610m vs $530m for put (put) options. However, as bitcoin fell 20% in November, most bullish bets are likely to turn out to be worthless.
For example, if the bitcoin price remains below $17,000 at 08:00 UTC on November 25, these call options will only be available for $53 million. The reason for this difference is that the right to buy bitcoins above $17,000 is of no use if they are trading below that level at expiration.
The Bears could make a profit of $245 million
Below are the four most likely scenarios based on the current price action. The number of option contracts available on November 25 for call (bullish) and put (bearish) instruments varies according to the expiration price. The imbalance in favor of each side equals the theoretical profit:
- Between $15,000 and $16,000 : 200 calls against 16,000 puts. The net result is $245 million in favor of the bears.
- Between $16,000 and $17,000 : 3,200 call options compared to 11,900 put options. The net result in favor of the bears is $145 million.
- Between $17,000 and $18,000 : 5,600 call options versus 8,800 put options. The bears remain in control, with a profit of $55 million.
- Between $18,000 and $18,500 : 9,100 call options versus 6,500 put options. The net result favors the bulls by $50 million.
Also read: BTC price at $16,000 as analyst says bitcoin fundamentals unchanged
This rough estimate considers the call options used in bullish bets and puts exclusively neutral options into bearish trades. Despite this, this oversimplification does not take into account more complex investment strategies.
Bitcoin bulls need to push the price above $18,000 on November 25 to reverse the situation and avoid a potential loss of $245 million. However, bitcoin bulls recently liquidated $230 million in leveraged long futures positions, so they are less inclined to push the price higher in the short term. That said, the most likely scenario for November 15 is a $15,000-$17,000 range, which is a reasonable win for the bears.
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