Every time a new all-time high of Bitcoin (BTC) forms, exaggerated expectations follow. It was no different this time as the price briefly hit $ 69,000 in the early hours of November 9th.
Bitcoin 8h, we received our historical correction from November 9th, seems to be very low for the time being. Of course, I expect a bigger correction after we hit the 84k region and then into the blast. $ BTC #Crypto #Bitcoin pic.twitter.com/cfbBkOIFEK
– Miles J Creative (@JohalMiles) November 9, 2021
Words are just words, so there is no loss to being overly bullish or bearish, but there is a cost to placing these bets in the options markets. For example, on November 10th, a right to buy Bitcoin (call option) at USD 100,000 is traded at BTC 0.022 or USD 1,460 on December 31st. For this privilege, the investor pays an upfront fee, which is also known as a premium.
Analysts and experts are quick to reveal their $ 100,000 targets after Bitcoin posted its highest monthly close ever. However, history has shown that short-term price estimates rarely work, and it doesn’t matter whether you’re an anonymous Twitter character or an accomplished multi-million dollar crypto fund manager.
Bitcoin price estimates are often far away
Although Tim Draper is a widely successful venture capital investor, the 2020 price estimate of $ 250,000 was 88% lower. Even reputable bank analysts can be very wrong, as can a “Market Comment” from Citibank FX Wire in November 2020 citing a potential high of $ 318,000 in 2021. Even so, with 50 days to the end of the year, perhaps some of these prophecies will prove to be true, but the majority remain no better than random numbers.
Bears may have regulatory hurdles in their sights, for example Singapore will be the last region to ban crypto derivatives exchange services. Huobi Global announced on Tuesday that it would close the accounts of all Singapore-based users by the end of March 2022. In September, the Thai Securities and Exchange Commission also recommended that Huobi revoke its local operating license.
An initial analysis based on the open interest of call (buy) options and put (sell) instruments shows a balanced position for the options expiration on November 12th for $ 1.3 billion .
Bitcoin Options Aggregate Open Interest for November 12th. Source: Bybt
At first glance, the call (buy) options in the amount of 630 million dominate.
The 1.12 call-to-put ratio is deceptive, however, as the recent rally is likely to undo most bearish bets. For example, if the price of Bitcoin stays above $ 66,000 at 8:00 a.m. UTC on November 12th, virtually every put (sell) instrument will become worthless. The right to sell Bitcoin for $ 58,000 or $ 62,000 has no value if it trades above that price.
Bulls could aim for a profit of $ 410 million over $ 70,000
Below are the four most likely scenarios for the November 12th expiration. The imbalance that benefits both sides represents the theoretical profit. In other words, the active amount of call (buy) and put (sell) contracts varies depending on the expiry price:
- Between $ 64,000 and $ 66,000: 2,440 calls vs. 310 puts. Net income is $ 135 million in favor of call (bull) instruments.
- Between $ 66,000 and $ 68,000: 3,430 calls vs. 50 puts. Net income is $ 225 million in favor of call (bull) instruments.
- Between $ 68,000 and $ 70,000: 44,070 calls vs. 10 puts. Net income is $ 305 million in favor of call (bull) instruments.
- Over $ 70,000: 5,820 calls vs. 0 puts. The net result is complete dominance with the bulls making $ 410 million.
This rough estimate takes into account that call options are only used in bullish bets, while put options are used in neutral to bearish trades. This simplification ignores more complex investment strategies.
For example, a trader could have sold a put option, effectively taking positive exposure to Bitcoin above a certain price. Unfortunately, there is no easy way to gauge this effect.
The bears’ best hopes proved ineffective
After a 19% rally in 30 days, bulls dominate the weekly run on November 12th. One factor that may have contributed to this move was the lack of an adverse impact on prices after the US House of Representatives passed over $ 1 trillion on infrastructure. The bill requires that all digital asset transactions greater than $ 10,000 be reported to the IRS.
Traders need to keep in mind that even bearish news during bull runs has little to no impact on price. In addition, the effort to keep the price down is increased and usually ineffective.
Bulls could take advantage of the current situation by driving BTC above $ 70,000, which would result in an additional estimated profit of $ 105 million, bringing their grand total to $ 410 million.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.
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