Bitcoin is up 3.22% as of writing this article, but the cryptocurrency bears still have a short-term advantage according to one expert. Will Bitcoin be able to rally back and reclaim market dominance?
The “next fed meeting” is a term that refers to the next Federal Open Market Committee (FOMC) meeting. The market rallied after the FOMC meeting, but Bitcoin bears still have a short-term advantage.
Bitcoin’s (BTC) price has been on the down since hitting an all-time high of $69,000 on Nov. 10, when the Labor Department reported that inflation in the United States had surpassed 6.2 percent. While this news may be good for non-inflationary assets, the US Securities and Exchange Commission’s (SEC) rejection of VanEck’s physical Bitcoin exchange-traded fund (ETF) on Nov. 12 caught some investors off surprise.
Coinbase’s Bitcoin/USD exchange rate. TradingView is the source of this information.
While the rejection of the ETF proposal was widely anticipated, the grounds cited by the regulator may be concerning to certain investors. Due to uncontrolled exchanges and high trading volume based on Tether’s (USDT) stablecoin, the US SEC was unable to prevent market manipulation in the larger Bitcoin market.
Analyzing the larger market structure is crucial, particularly as investors pay careful attention to Federal Reserve meetings in the United States. Regardless of the amount of the Fed’s anticipated reduction of its bond and asset buying program, Bitcoin’s price has tracked US Treasury rates over the last year.
Bitcoin/USD at FTX (orange, left) compared. 10-year Treasury Yields in the United States (blue, right). TradingView is the source of this information.
The Federal Reserve’s monetary policy with risky assets, such as Bitcoin, has been quite decisive, as seen by this close association. Furthermore, the drop in yield over the last three weeks from 1.64 to 1.43 explains some of the crypto market’s weakness.
There are obviously other variables at play; for example, the market downturn on November 26 was mostly due to fears over the new COVID-19 variation. In terms of derivatives markets, a Bitcoin price below $48,000 gives bears entire control over the $755 million BTC options expiration on Friday.
Bitcoin options open interest on December 17th. Coinglass.com is the source of this information.
The $470 million call (buy) options seem to outnumber the $285 million put (sell) options at first glance, but the 1.64 call-to-put ratio is misleading since the 14 percent price decline since Nov. 30 will likely wipe out the majority of the bullish bets.
Only $28 million worth of call (purchase) options will be available at the expiration if Bitcoin’s price stays below $49,000 at 8:00 a.m. UTC on Dec. 17. In other words, if Bitcoin is selling below $49,000, the right to acquire it at that price is worthless.
Bears are content with Bitcoin trading below $57,000.
The three most probable possibilities for the $755 million options expiration on Friday are as follows. The possible profit is represented by the imbalance favoring either side. In other words, the number of active call (buy) and put (sell) contracts fluctuates based on the expiration price:
- 110 calls vs. 2,400 puts between $45,000 and $47,000. The overall outcome favors the put (bear) options by $105 million.
- 280 calls vs. 1,900 puts between $47,000 and $48,000. The overall outcome favors put (bear) instruments by $75 million.
- 1,190 calls vs. 1,130 puts between $48,000 and $50,000. As a consequence, the call and put options are evenly distributed.
Call options are employed solely in bullish wagers, whereas put options are used exclusively in neutral-to-bearish transactions, according to this rough estimate. This oversimplification, however, ignores more complicated investing techniques.
A trader, for example, may have sold a call option to get positive exposure to Bitcoin (BTC) above a certain price. However, there is no simple method to measure this impact.
To balance the scales, the bulls need $48,000 or more.
Bulls can only escape a substantial loss in the December 17 expiration if Bitcoin’s price remains over $48,000. If the present short-term bearish mood persists, bears may easily push the price down 4% from its current level of $48,500, profiting up to $105 million if Bitcoin remains below $47,000.
Currently, data from the options markets favor put (sell) options, giving chances for further negative pressure.
The author’s thoughts and opinions are purely his or her own and do not necessarily represent those of Cointelegraph. Every investing and trading decision has some level of risk. When making a choice, you should do your own research.
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