Bitcoin (BTC) bulls are still healing their wounds following the bloody December 4 correction, which saw the price collapse from $ 57,000 to $ 42,000. This 26.5% downward move resulted in the liquidation of $ 850 million in BTC long futures, but more importantly, it moved the “Fear and Greed” index to its lowest level since the 21st. July.
It’s sort of strange to compare the two events, as the July 21 low of less than $ 30,000 would have wiped out any gains in 2021. Meanwhile, the December 4 low of $ 42,000 is still a gain of 44% since the start of the year. Compare that to the S&P 500, which is up 21% in 2021, and the price of WTI oil, which is up 41%.
The bulls could focus on Bitcoin reserves held in exchanges, which continue to decline and are currently at the lowest level in three years. According to data from CryptoQuant, there are now less than 2.27 million BTC deposited on exchanges and fewer coins available for trading signal that investors are unwilling to sell in the short term. This is a dynamic that many investors see as bullish.
Even with the apparent balance between call (buy) and put (put) options at Friday’s $ 1.1 billion expiration, bears are better positioned after Bitcoin stabilized slightly above of $ 50,000.
A broader view using the call-to-put ratio shows a modest 7% advantage for Bitcoin bulls, as $ 555 million buy (buy) instruments have more open interest than put options ( sale) of $ 520 million. However, the 1.07 indicator is misleading as the 11.5% price drop over the past week has rendered most bullish bets worthless.
For example, if the price of Bitcoin stays below $ 52,000 at 8:00 a.m. UTC on December 10, only $ 50 million of those call options will be available. This effect occurs because there is no value in the right to buy Bitcoin at $ 55,000 if it is trading below that price.
Figures suggest the bulls are poised for a major loss
Below are the three most likely scenarios based on the current price action. The number of options contracts available on December 10 for bullish (call) and bearish (put) instruments varies depending on the expiration price of BTC. The imbalance in favor of each camp constitutes the theoretical gain:
- Between $ 47,000 and $ 50,000: 400 calls against 6,600 put options. The net result is $ 300 million in favor of put (bear) instruments.
- Between $ 50,000 and $ 54,000: 1,700 calls against 4,700 put options. Net income is $ 160 million in favor of put (bear) instruments.
- Above $ 54,000: 2,400 calls against 2,900 put options. The net result favors put (bearish) $ 30 million.
This raw estimate considers call options used in bullish bets and puts that are exclusively in neutral to bearish trades. Even so, this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a call option, thereby gaining negative exposure to Bitcoin above a specific price. But, unfortunately, there is no easy way to estimate this effect.
Bears will do their best to keep BTC below $ 50,000
Bitcoin bears need a slight push to under $ 50,000 to turn $ 300 million in profit. On the flip side, the bulls would need a 7.2% price recovery from the current $ 50,500 to cut their loss in half.
Given the $ 2 billion liquidation of leveraged long positions on Dec. 4, the bulls will likely try to stay afloat and not be willing to add more risk just yet. It would be needlessly inefficient for bullish investors to waste their efforts trying to recoup this short-term loss.
So, in this case, the bears seem poised to keep the edge on this weekly options expiration.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.