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Bitcoin is regaining intraday gains as bears aim to stabilize BTC price below $18k

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On December 14, Bitcoin (BTC) surpassed $18,000 for the first time in 34 days, posting a gain of 16.5% from the low of $15,500 on November 21. The move followed a 3% increase in S&P 500 futures in three days, which reclaimed the critical support of 4,000 points.

The Bitcoin/USD Index (orange, left) vs. the S&P 500 Index futures (right). Source: TradingView

While the BTC price started the day in favor of the bulls, investors eagerly awaited the US Federal Reserve’s decision on interest rates, along with comments from Federal Reserve Chairman Jerome Powell. The subsequent 50 basis point rally and Powell’s explanation of why the Fed stayed the course gave investors good reason to suspect that the Bitcoin price will retain its current gains leading to the $370 million options expiring on December 16th.

Analysts and traders are anticipating some form of reversal in the macroeconomic tightening movement. For those unfamiliar, the Federal Reserve increased its balance sheet from $4.16 trillion in February 2020 to $8.9 trillion in February 2022.

Since that peak, the monetary authority has been trying to offload debt instruments and exchange-traded funds (ETFs), a process known as tapering. However, the past five months have resulted in less than $360 billion in declines in Fed assets.

Until there is clearer evidence about the economic policies of the world’s largest economy, bitcoin traders are likely to remain skeptical of sustained price action, regardless of direction.

Bears have placed most of their bets below $16,500

The open interest for the December 16 options expiration is $370 million, but the actual number would be lower since the bears were caught off guard after moving to $18,000 on December 14. These traders completely missed the mark by placing bearish bets between $11,000 and $16,500, which seems unlikely given the market conditions.

Bitcoin options pool open interest on 16th december. Source: CoinGlass

The call-to-call ratio of 0.94 shows a balance between the interest of opening the call (buying) of $180 million against the interest of putting (putting) the options of $190 million. However, since Bitcoin is standing near $18,000, most of the bearish bets are likely to become worthless.

If Bitcoin remains above $18,000 at 8:00 AM UTC on December 16, none of these put (sell) options will be available. This difference occurs because the right to sell Bitcoin at $17,000 or $18,000 is worthless if BTC trades above that level at expiry.

The bulls can win up to $155 million

Here are the four most likely scenarios based on the current price action. the number of Bitcoin options contracts Available on December 16 for the call (bull) and put (bear) instruments vary, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical gain:

  • Between $16,500 and $17,500: 1400 calls for 1200 puts. The net result is balanced between buying and selling.
  • Between $17,500 and $18,000: 3,700 calls for 100 puts. Net score favors Buy Instruments (Taurus) by $60 million.
  • Between $18,000 and $19,000: 6200 calls for 0 puts. Net result favors buys (bull) by $115 million.
  • Between $19,000 and $19,500: 8100 calls for 0 puts. Net result favors buys (bull) by $155 million.

This rough estimate takes into account buy options used in bearish bets and call options exclusively in neutral to bullish trades. However, this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to bitcoin above a certain price, but unfortunately, there is no easy way to estimate this effect.

The FTX infection continues to affect the markets

During bear markets, it is easier to negatively impact the Bitcoin price due to the tone of the news flow and its huge impact on the cryptocurrency market.

Recent negative cryptocurrency news includes a US court filing reporting that showed An “unfair” commercial advantage to Alameda Researchthe market-making and trading company associated with the bankrupt FTX exchange.

The US Commodity Futures Trading Commission claims that Alameda Research had faster trade execution times and an exemption from the exchange’s “automatic liquidation risk management process”.

As December 16 approaches, the best-case scenario requires bulls to pump above $19,000 to extend their gains to $155 million. This seems unlikely given the remaining regulatory and infectious risks. For the time being, the bears are likely to be able to pressure BTC below $18,000 and avoid losses higher.