Bitcoin (BTC) price: here is the opinion and analysis of traders on recent developments in the price of BTC

Published on January 13, 2022, 10:03

Bitcoin (BTC) has rebounded 11% since the low of $39,650 hit on January 10 and currently the price is struggling with the $44,000 level. There are multiple explanations for this recent weakness, but none seem sufficient to justify the 42% correction that has taken place since the November 10 all-time high at $69,000.

At the time (November 12), negative remarks from the US Securities and Exchange Commission (SEC) were issued on the occasion of the rejection of VanEck’s physical bitcoin exchange-traded fund (ETF). The regulator cited the inability to avoid market manipulation due to the lack of exchange regulation and the large trading volumes based on the Tether (USDT) stablecoin.

Then, on December 17, the United States Financial Stability Supervisory Board recommended that state and federal regulators consider regulations and tools that could be applied to digital assets. On January 5, the price of BTC corrected again after the December session of the Federal Open Market Committee (FOMC) of the Federal Reserve, which confirmed plans to ease the debt buyback and probably increase interest rates.

As for the derivatives markets, if the price of bitcoin trades below $42,000 at the January 14 expiry, the bears will have a net profit of $75 million on their BTC options.

At first glance, the $455 million call options dwarf the $295 million put options, but the 1.56 ratio of call options to put options is misleading because the 14 % of the price over the past three weeks is likely to clear most bullish bets.

If the bitcoin price stays below $44,000 at 8:00 UTC on January 14, only $44 million of these call options will be available at expiration. The right to buy bitcoins at $44,000 has no value if the price of bitcoin is below that price.

The bears could make a profit of $75 million if BTC breaks below $42,000.

Here are the four most likely scenarios for the expiration of the $750 million options on January 14. The imbalance in favor of each side represents the theoretical profit. In practice, depending on the expiry price, the amount of buy (call) and sell (put) contracts becoming active varies:

This rough estimate considers that put options are used in neutral to bearish bets and call options exclusively in bullish trades. However, this oversimplification does not take into account more complex investment strategies.

For example, a trader might have sold a put option, thereby gaining positive bitcoin exposure above a specific price. But, unfortunately, there is no easy way to estimate this effect.

See also: Traders think bitcoin’s rise to $44,000 could be a relief bounce, citing a repeat of December’s nuclear attack.

The Bulls need $46,000 for a decent win.

The only way for the bulls to make a meaningful gain on the January 14 expiry is to hold bitcoin price above $46,000. However, if the current short-term negative sentiment prevails, the bears could easily pressure the price down 4% from the current $43,800 and boost profit up to $75 million if the price bitcoin remains below $42,000.

Currently, options markets appear to be balanced, giving bulls and bears an equal chance for Friday’s expiry.

The views and opinions expressed here are solely those of the author and do not necessarily reflect those of Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.

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Olivier Baron
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