Bitcoin (BTC) faced a 7.3% decline between November 20 and 21 when it tested the $15,500 support. Although the correction appears to be small, the movement caused $230 million in liquidation of futures contracts. As a result, leveraged bulls came out ill-prepared for November 25, when the $1.14 billion one-month option expires.
Bitcoin investor sentiment soured after Genesis Trading, part of the Digital Currency Group (DCG) conglomerate, has stopped payouts at its cryptocurrency lending branch November 16. More importantly, DCG owns the fund management company Grayscale, which is responsible for the largest institutional Bitcoin investment vehicle, Grayscale Bitcoin Trust (GBTC).
In addition, Bitcoin miner Core Scientific warned “substantial doubts” about its continued operation in the next 12 months given her financial uncertainty. In its quarterly report filed with the United States Securities and Exchange Commission (SEC) on November 22, the firm 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 US Congress on November 22 recommending ban on buying cryptocurrencies using funds in IRAs and defined contribution plans such as 401(k) and 457 plans.
Despite the bulls’ best efforts, Bitcoin has failed to post a daily close above $17,000 since November 11. This move explains why the Nov. 25 expiration of $1.14 billion in monthly bitcoin options may benefit the bears despite a 6% rise from the $15,500 low.
Most bullish bets are above $18,000
Bitcoin’s steep 27.4% correction after failing to break the $21,500 resistance on November 5 surprised the bulls, as only 17% of calls (buy) options for monthly expiration were placed below $18,000. Thus, the bears are in a better position, even though they have bet less.
A broader view using a call-to-put ratio of 1.14 shows more bullish bets as call (buy) open interest stands at $610 million versus put (sell) options at $530 million. However, with Bitcoin down 20% in November, most bullish bets are likely to become worthless.
For example, if the price of Bitcoin remains below $17,000 at 8:00 UTC on November 25, only these $53 million worth of call (call) options will be available. This difference occurs because the right to buy Bitcoin above $17,000 is meaningless if it is trading below that level at expiration.
The Bears could secure a profit of $245 million
Below are the four most likely scenarios based on current price action. The number of option contracts available on November 25 for call (bull) and put (bear) instruments varies depending on the expiration price. An imbalance in favor of each side constitutes a theoretical profit:
- Between $15,000 and $16,000: 200 calls vs. 16,000 insertions. The net result favors the bears by $245 million.
- Between $16,000 and $17,000: 3,200 calls vs. 11,900 insertions. The net result favors the bears by $145 million.
- Between $17,000 and $18,000: 5,600 calls vs. 8,800 insertions. The Bears remain in control and earn $55 million.
- Between $18,000 and $18,500: 9,100 calls vs. 6,500 insertions. The net result favors the bulls by $50 million.
This rough estimate takes into account call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this simplification does not take into account more complex investment strategies.
Bitcoin bulls need to push the price above $18,000 on November 25 to turn the tables and avoid a potential loss of $245 million. However, Bitcoin bulls recently liquidated $230 million worth of leveraged long futures positions, making them less willing to push the price higher in the short term. Given that, the most likely scenario for November 15 is the $15,000-$17,000 range, which will give the bears a decent win.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.