Bitcoin (BTC) faced a 7.3% drop between November 20 and 21 when it tested the $15,500 support. While the correction appears small, the move resulted in the liquidation of $230 million in futures contracts. Consequently, the leveraged bulls were ill-prepared for the $1.14 billion monthly options expiration on November 25th.
Bitcoin investor sentiment took a turn for the worse after Genesis Trading, part of the Digital Currency Group (DCG) conglomerate, suspended payouts at its cryptocurrency lending arm on Nov. 16. More importantly, DCG owns the Grayscale fund management company, which is responsible for Bitcoin’s largest institutional investment vehicle, the Grayscale Bitcoin Trust (GBTC).
In addition, Bitcoin mining company Core Scientific warned of “substantial doubt” about its continued operation over the next 12 months given its financial uncertainty. In its quarterly report filed with the U.S. Securities and Exchange Commission (SEC) on Nov. 22, the firm posted a net loss of $434.8 million in the third quarter of 2022.
Meanwhile, on Nov. 22, New York Attorney General Letitia James sent a letter to members of the US Congress recommending a ban on the purchase of crypto using funds in IRAs and defined contribution plans such as 401(k) and 457 plans.
Despite the best efforts of the bulls, Bitcoin has not been able to close above $17,000 in a day since November 11. This move explains why the $1.14 billion monthly bitcoin options expiration on Nov. 25 could benefit the bears despite a 6 percent rally off the $15,500 bottom. .
Most bullish bets are above $18,000.
Bitcoin’s steep 27.4% correction after failing to break the $21,500 resistance on Nov. 5 surprised bulls as only 17% of monthly-expiring calls (buy) options were placed below $18,000. Thus, the bears are in a better position, although they made fewer bets.
A broader view using a call-to-put ratio of 1.14 shows more bullish bets because $610 million of call (buy) open interest versus $530 million of put (sell) options. However, with bitcoin down 20% in November, most of the bullish bets are likely to be worthless.
For example, if the price of Bitcoin stays below $17,000 at 8:00 AM UTC on November 25th, these call (buy) options will only be available in the amount of $53 million. This difference comes from the fact that it makes no sense to buy bitcoin above $17,000 if it trades below that level at expiration.
The Bears could make a $245 million profit
Below are the four most likely scenarios based on the current price movement. The number of option contracts available on Nov. 25 for call (bullish) and put (bearish) instruments varies depending on the expiration price. The imbalance in favor of each side is the theoretical profit:
- $15,000 to $16,000: 200 calls versus 16,000 puts. The net result in favor of the bears is $245 million.
- $16,000 to $17,000: 3200 calls versus 11900 puts. The net result in favor of the bears is $145 million.
- $17,000 to $18,000: 5600 calls versus 8800 puts. The Bears maintain control with a $55 million profit.
- From $18,000 to $18,500: 9100 calls versus 6500 puts. Net result in favor of the bulls by $50 million.
Connected: BTC Price Holds At $16K As Analyst Says Bitcoin Fundamentals ‘Hadn’t Changed’
This rough estimate takes into account call options used in bullish bets and put options exclusively in neutral bear trades. However, this oversimplification ignores more complex investment strategies.
Bitcoin bulls need to push the price above $18,000 on November 25 to turn the tide and avoid a potential loss of $245 million. However, Bitcoin bulls have recently had $230 million in leveraged long futures positions liquidated, so they are less likely to push the price higher in the short term. With that said, the most likely scenario for Nov. 15 is a $15,000 to $17,000 range providing a decent win for the bears.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cointelegraph.