Bitcoin bulls are likely quite frustrated with the market going into 2022, especially since the cryptocurrency is down more than 20% over the past 25 days. Even more shocking, the Jan. 21 low of $32,930 was BTC’s lowest price in six months, while the stock market, as measured by the S&P500 Index, hit ATH on Jan. 4.
The sell-off in risk markets accelerated after the US Federal Reserve (Fed) said it would hike interest rates in the coming months to stem escalating inflation.
Regulatory uncertainties continue to weigh on the crypto market as US Congressman Patrick McHenry said The inconsistent treatment and regulatory uncertainty for cryptocurrencies is a major concern for this market. McHenry has essentially proposed that Congress remove cryptocurrency regulations from the executive branch and the courts.
Bitcoin price is recovering, but bulls are still struggling to expire $2.3 billion worth of options
Bitcoin bulls became more buoyant after the price rallied 12% to the $38,100 region on Jan. 26. At the end of the monthly options contract, the bears will make $350 million.
Bitcoin Options Synthesis Jan 28 | Source: coin jar
The $1.52 billion call volume dwarfed the $760 million put, but the 1.96 call-to-put ratio fooled everyone as the recent decline would have the most bullish bets can extinguish.
For example, if the price of Bitcoin is still below $38,000 at 3:00 p.m. on Jan. 28, only $72 million of those views will be available at expiry, since the right to buy BTC is $72 million. 38,000 will be void if the price is trading below this level.
Here are the three most likely scenarios for today’s $2.3 billion options expiration. An imbalance in favor of both represents a theoretical profit level. In reality, however, the number of active buy and sell contracts varies depending on the expiry price:
- From $35,000 to $37,000: 660 contracts to buy and 13,550 to sell. The net result is $450 million in put (bear) support.
- From $37,000 to $39,000: 1,300 contracts to buy and 13,100 to sell. The net result is $315 million in favor of the put (bears).
- From $39,000 to $41,000: 3,710 contracts to buy versus 8,170 to sell. The net result was a $180 million win for the Bears.
This estimate accounts for calls used in bullish bets and puts in neutral to bearish trades, excluding more complex investment strategies.
For example, a trader might have sold a call option, negatively impacting BTC above a certain price. However, there is no way to estimate these cases.
It seems relatively easy to move the bitcoin price 3% above the $39,000 region on today’s expiration date. However, given the negative news flow surrounding regulation and monetary tightening, the bulls are likely to struggle to break through this area.
Therefore, if the short-term negative sentiment prevails, the bears can easily push the price down by 3%, causing the price to drop from $38,100 to $36,900, taking a profit of $450 million.
Overall, the bears are completely dominant during the Jan. 28 monthly option expiration, which offers little hope for a near-term recovery from BTC to $40,000.
$1.1 billion in Ethereum options expire as bears take advantage
Ether price fell below the $3,000 support on Jan 21 as regulatory uncertainty continues to affect the sector and rumors that the US Securities and Exchange Commission (SEC) is investigating.
On Jan. 27, the Russian Ministry of Finance presented a review of the cryptocurrency regulatory framework. The proposal suggests that cryptocurrency activities could be subject to the administration of traditional banks and that mechanisms to identify traders’ personal data will be integrated in the near future.
More bearish news comes as Ryan Korner, a top criminal investigation special agent for the US Internal Revenue Service (IRS) in Los Angeles, made negative comments during a virtual event organized by law school USC Gould. According to Ryan, crypto is the “future” but “fraud and manipulation are still rampant in the space.”
Ether bulls are trying to determine if the drop to $2,140 on Jan 24 is the final bottom of the current downtrend. The 30-day correction of 47.5% resulted in liquidation of long futures contracts totaling $1.58 billion.
ETH price chart | Source: TradingView
Ether price has been falling for 75 days and it is currently holding the $2,200 area as support. On the other hand, a 19% price rally from the current $2,500 level to the $3,000 resistance is unlikely to signal a trend reversal.
As the dominant $1.1 billion call options expire on Friday, the bears are strengthening after Ether price stabilized below $3,000.
Synthesis of ether options on January 28 | Source: coin jar
From a broader perspective, using the order rate shows an 82% advantage for ether bulls, as buy instruments worth $680 million have greater open interest (OI) than options sold for $410 million. However, the 1.82 call-to-put ratio misled everyone as the price drop below $3,000 rendered most bullish orders worthless.
For example, if the price of Ether stays below $2,500 at 15:00 on January 28, there are only $57 million in active call options. This event occurs because the right to buy ether at $2,500 will be voided if the price trades below this level.
Here are the three most likely scenarios based on current price action. The number of options contracts for bulls and bears valid today varies depending on the expiry price. An imbalance in favor of both represents a theoretical profit level:
- From $2,200 to $2,400: 3,200 contracts to buy with 121,500 sales. The net result is $270 million in favor of the bears.
- From $2,400 to $2,700: 19,500 contracts to buy versus 95,500 to sell. The net result earns the Bears $190 million.
- From $2,700 to $2,900: 34,700 contracts to buy with 73,400 sales. The net result is $110 million in favor of the bears.
This estimate accounts for calls used in bullish bets and puts in neutral to bearish trades, excluding more complex investment strategies.
For example, a trader might have sold a call option, negatively impacting ETH above a certain price. However, there is no way to estimate these cases.
Ether bears need to pull the price below the $2,400 area on Friday for a $270 million gain. On the upside, the bulls need to recover the price by 8.4% from the current $2,500 level to cut the 58% loss.
Ether bulls are not willing to take the risk right now given the negative signals surrounding regulation. Therefore, they should focus their efforts on salvaging some of their capital by keeping Ether price above $2,500 to reduce the loss to $170 million.
January seems to have given Ether’s bears the upper hand to keep the price under pressure in the short-term.
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