The current action has those who are always optimistic about the stock market, as well as those who buy stock when prices are low, believing that the market has reached its lowest point and the bear market could be over, but what does the evidence really indicate?
Bitcoin proponents are trying to lift the cost of BTC to $18,000 and the data from options trading offers crystal clear explanations why. The value of Bitcoin (BTC) rose to $17,500 on the 11th of January, taking it to its peak level in three weeks.
This move gave the bulls control of the $275 million weekly BTC options expiry that is to take place on the 13th of January due to the fact that bears had made wagers at $16,500 or lower. This recent surge has permanent bulls and buyers of the dip claiming that the market had hit bottom and that the bear market might be coming to an end, but what does the data actually point to?
Has the downtrend of Bitcoin prices come to an end?
It may appear to be overly negative to say at this moment, yet Bitcoin did trade underneath the $16,500 level on Dec. 30, and those bearish bets are not likely to prove beneficial as the options due date draws near. Investors’ primary expectation is that the Federal Reserve might quit raising interest rates in the first quarter of 2023. The Consumer Price Index (CPI) inflation report will be released on Jan. 12 and could give an indication as to whether the central bank’s effort to slow the economy and reduce inflation is having its expected results.
At the same time, crypto traders are concerned that any eventual decrease in the traditional markets could cause Bitcoin to test the $15,500 low. For example, Mike Wilson, Morgan Stanley’s CIO and chief U.S. equity strategist, told investors on CNBC to prepare for a winter downturn and cautioned that the S&P 500 index is exposed to a 23% decline to 3,000. Wilson further added: “Even though the majority of institutional clients think that we are likely to enter a recession, they don’t seem to be apprehensive about it. That is just a huge inconsistency.”
Those with a pessimistic outlook for Bitcoin were not anticipating the surge to $17,500.
At the time of writing, the open interest for the Jan. 13 options expiry is set at $275 million. However, this number is likely to be lower, since investors who bet on the price being lower than $16,500 are likely to be disappointed. Bulls appear to be in charge, and their payout will increase if prices reach $18,000 or above.
The 1.18 call-to-put ratio demonstrates the disparity between the $150 million call (buy) open interest and the $125 million put (sell) options. If the value of Bitcoin stays above $17,000 at 8:00 am UTC on Jan. 13, then less than $2 million worth of the put (sell) options will be available. This discrepancy is because the right to sell Bitcoin at $16,500 or $15,500 is pointless if it is trading above these levels at expiry.
Bulls are in for a $130 million windfall if the value of Bitcoin increases to $18,000.
Four probable situations have been determined based on the current market conditions. The amount of call and put options accessible on the 13th of January depends on the expiration cost. The disparity that favors one side or the other is the hypothetical gain; this approximate estimation takes into account the puts utilized in bearish wagers and the calls only in neutral to bullish trades. However, this simplification overlooks more complex investment plans.
For instance, a trader could have sold a put option, essentially gaining a positive outlook for Bitcoin at a certain cost, but sadly, there isn’t an easy way to evaluate this effect. The bears require to drive down Bitcoin’s value to underneath $16,500 on Friday to make a potential $40 million profit.
On the contrary, the bulls may raise their returns by pushing the rate slightly more than $17,500 to get a profit of $75 million. The 4-day rally added a 4.5% gain and liquidated $285 million worth of leverage short (sell) futures agreements, so they may have lesser margin needed to control the price of Bitcoin.
Taking into account the unpredictability of the upcoming CPI inflation data, all bets are on the table, but bulls have decent reasons to attempt pushing the Bitcoin rate above $17,500 on the 13th of January.