Deribit

Bitcoin derivatives data points to traders' $50K BTC price target

Bitcoin bulls expectations of $50,000 and higher remain feasible according to BTC futures and options markets.

Bitcoin (BTC) price continues to trade below its 2023 high, a sign that investors may have underestimated the strength of the $44,000 resistance. Even as BTC price trades below $42,000, it doesn’t necessarily mean that reaching $50,000 and beyond is no longer possible. In fact, quite the opposite seems more likely to occur. Looking at Bitcoin derivatives metrics, it is clear that traders ignored the 6.9% drop and remained optimistic. However, is this optimism enough to justify further gains?

The $127 million liquidation of leveraged long Bitcoin futures on Dec. 11 may seem significant in absolute terms, but it represents less than 1% of the total open interest – the value of all outstanding contracts. Nevertheless, it’s undeniable that the liquidation engine triggered a 7% correction in less than 20 minutes.

On one hand, one could argue that derivatives markets played a crucial role in the recent negative price movement. However, this analysis overlooks the fact that after hitting a low of $40,200 on Dec. 11, Bitcoin’s price increased by 4.2% in the following six trading hours. In essence, the impact of forceful liquidation orders had dissipated long ago, disproving the notion of a crash solely driven by futures markets.

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Bitcoin options data shows whales betting big — Will $50K BTC come in January?

Institutional investor interest soars as Bitcoin options open interest hits record high.

Bitcoin (BTC) options open interest reached an unprecedented milestone, surging to a staggering $20.5 billion on Dec. 7. This signifies the active involvement of institutional investors in the cryptocurrency space. Unlike futures contracts, BTC options have predetermined expiration prices, offering valuable insights into traders’ expectations and market sentiment.

At the forefront of the Bitcoin options market stands Deribit, boasting a 90% market share. The exchange currently holds a substantial $2.05 billion open interest for options expiring on Jan. 26. However, many of these bets may lose their value as the deadline approaches.

Nonetheless, with the prospect of a spot exchange-traded fund (ETF) gaining regulatory approval, previously sidelined bullish bets are reentering the playing field.

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Bitcoin retraces intraday gains as bears aim to pin BTC price under $18K

BTC bears are positioned to profit from this week’s Bitcoin options expiry, especially if price stays below $18,000.

On Dec. 14, Bitcoin (BTC) broke above $18,000 for the first time in 34 days, marking a 16.5% gain from the $15,500 low on Nov. 21. The move followed a 3% gain in the S&P 500 futures in three days, which reclaimed the critical 4,000 points support. 

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

While BTC price started the day in favor of bulls, investors anxiously awaited the U.S. Federal Reserve decision on interest rates, along with Fed chair Jerome Powell’s remarks. The subsequent 50 basis point hike and Powell’s explanation of why the Fed would stay the course gave investors good reason to doubt that BTC price will hold its current gains leading into the $370 million options expiry on Dec. 16.

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

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

Until there’s a clearer guide on the economic policies of the world’s largest economy, Bitcoin traders are likely to remain skeptical of a sustained price movement, regardless of the direction.

Bears placed most of their bets below $16,500

The open interest for the Dec. 16 options expiry is $370 million, but the actual figure will be lower since bears were caught off-guard after the move to $18,000 on Dec. 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 aggregate open interest for Dec. 16. Source: CoinGlass

The 0.94 call-to-put ratio shows a balance between the $180 million call (buy) open interest against the $190 million put (sell) options. Nevertheless, as Bitcoin stands near $18,000, most bearish bets will likely become worthless.

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

Bulls can profit up to $155 million

Below are the four most likely scenarios based on the current price action. The number of Bitcoin options contracts available on Dec. 16 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $16,500 and $17,500: 1,400 calls vs. 1,200 puts. The net result is balanced between calls and puts.
  • Between $17,500 and $18,000: 3,700 calls vs. 100 puts. The net result favors the call (bull) instruments by $60 million.
  • Between $18,000 and $19,000: 6,200 calls vs. 0 puts. The net result favors the call (bull) instruments by $115 million.
  • Between $19,000 and $19,500: 8,100 calls vs. 0 puts. The net result favors the call (bull) instruments by $155 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

FTX contagion continues to impact markets

During bear markets, it’s easier to negatively impact Bitcoin price due to the tone of newsflow and its outsized effect on the crypto market.

Recent negative crypto news includes reporting on a U.S. court filing that showed an “unfair” trading advantage for Alameda Research, the market-making and trading company associated with bankrupt exchange FTX.

The U.S. Commodities Futures Trading Commission alleges that Alameda Research had faster trading execution times and an exemption from the exchange’s “auto-liquidation risk management process.”

Leading into Dec. 16, the bulls’ best-case scenario requires a pump above $19,000 to extend their gains to $155 million. This seems improbable considering the lingering regulatory and contagion risks. For now, bears will likely be able to pressure BTC below $18,000 and avoid a higher loss.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin price volatility expected ahead of Friday’s $430M BTC options expiry

Here is why Bitcoin bears stand to profit from this week’s $430 million BTC options expiry.

Bitcoin (BTC) has been stuck below the $18,600 resistance for the past 19 days and while bears successfully breached the $16,000 support on Nov. 21, the 8% range is pretty narrow for an asset class with 60% annualized volatility.

This gives investors good reason to doubt that BTC price will hold its current gains leading into the $430 million BTC options expiry on Dec. 2.

Bitcoin/USD price index, 12-hour chart. Source: TradingView

Investors are still unsure about whether $15,500 was the Bitcoin bottom and the consequences of the FTX and Alameda Research demise continue to emerge. The latest contagion victim was Auros Global, an algorithmic trading and market-making firm, which missed a repayment on a decentralized finance loan.

Regulatory uncertainty also continues to limit Bitcoin’s price ascension, especially after United States Senator Elizabeth Warren reinforced the importance of blocking direct exposure of the insured financial institutions and the “highly speculative activity, highly leveraged, and vulnerable” crypto space.

Considering these risks, it seems essential that bulls defend $17,000 ahead of the Dec. 2 options expiry.

Bears placed most of their bets below $16,500

The open interest for the Dec.2 options expiry is $430 million, but the actual figure will be lower since bears were overly-optimistic. These traders completely missed the mark by placing bearish bets between $12,000 and $15,000 after Bitcoin lost the $16,000 support on Nov. 21.

Bitcoin options aggregate open interest for Dec. 2. Source: CoinGlass

The 0.88 call-to-put ratio shows the dominance of the $230 million put (sell) open interest against the $200 million call (buy) options. Nevertheless, as Bitcoin stands near $17,000, most bearish bets will likely become worthless.

If Bitcoin’s price remains above $17,000 at 8:00 am UTC on Dec. 2, only $4 million of these put (sell) options will be available. This difference happens because a right to sell Bitcoin at $16,000 or $17,000 is worthless if BTC trades above that level on expiry.

Bulls still have a slight chance

Below are the four most likely scenarios based on the current price action. The number of Bitcoin options contracts available on Dec. 2 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $15,500 and $16,500: 600 calls vs. 3,100 puts. The net result favors the put (bear) instruments by $40 million.
  • Between $16,500 and $17,000: 1,700 calls vs. 1,400 puts. The net result is balanced between calls and puts.
  • Between $17,000 and $18,000: 6,200 calls vs. 100 puts. The net result favors the call (bull) instruments by $110 million.
  • Between $18,000 and $19,000: 8,600 calls vs. 0 puts. The net result favors the call (bull) instruments by $160 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Related: CFTC chief says Bitcoin is the only commodity in the wake of FTX collapse

Pending regulation and contagion risk help to raise investors’ fear

During bear markets, it’s easier to negatively impact Bitcoin price due to the outsized effect negative newsflow has on the crypto market.

For example, Binance exchange moved $2 billion worth of Bitcoin on Nov. 28, triggering concerns in the community.

The transaction raised investors’ eyebrows because Binance CEO Changpeng Zhao had previously declared that it’s bad news when exchanges move large amounts of crypto to prove their wallet address. Consequently, odds are bears will likely be able to push the Bitcoin price below $17,000 and avoid a potential $110 million loss.

More importantly, the bulls’ best-case scenario requires a pump above $18,000 to extend their gains to $160 million — rather improbable considering the lingering regulatory and contagion risks. So, for now, bears seem to have control over Friday’s expiry, despite being overconfident.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This simple Bitcoin options strategy allows traders to go long with limited downside risk

Bullish on Bitcoin but afraid of futures liquidation? Here is how pro traders use options to cast safer bets.

Bitcoin (BTC) bulls were hopeful that the Nov. 21 dip to $15,500 would mark the cycle bottom, but BTC has not been able to produce a daily close above $17,600 for the past 18 days. 

Traders are clearly uncomfortable with the current price action, and the confirmation of BlockFi’s demise on Nov. 28 was not helpful for any potential Bitcoin price recovery. The cryptocurrency lending platform filed for Chapter 11 bankruptcy in the United States a couple of weeks after halting withdrawals.

In a statement sent to Cointelegraph, Ripple APAC policy lead Rahul Advani said he expects that FTX’s bankruptcy will lead to greater scrutiny on crypto regulations, and several global regulators have already pledged to develop more stringent crypto regulations.

Unfortunately, there is no way to know when investor sentiment will improve and trigger a new bull run. Despite this, for traders who believe BTC will reach $20,000 by Dec. 30, there is an options strategy that could yield a decent return with limited risk.

How pro traders use the bullish Iron Condor strategy

Buying Bitcoin futures pays off during bull markets, but the issue lies in dealing with liquidations when BTC price goes down. This is why pro traders use options strategies to maximize their gains and limit their losses.

The bullish skewed Iron Condor strategy can maximize profits near $21,000 by the end of 2022 while limiting losses if the expiry price is below $18,000. It is worth noting that Bitcoin traded at $16,168 when the pricing for this model happened.

Bitcoin options Iron Condor skewed strategy returns. Source: Deribit Position Builder

The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium.

Meanwhile, the put option allows its holder to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling this instrument (put) offers exposure to the price upside.

The Iron Condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the Dec. 30 contracts, but it can be adapted for other timeframes.

As shown above, the target profit area is $18,350 to $24,000. To initiate the trade, the investor needs to short (sell) 2 contracts of the $20,000 call option and two contracts of the $20,000 put option. Then, the buyer must repeat the procedure for the $22,000 options, using the same expiry month.

Buying 5.8 contracts of the $18,000 put option to protect from an eventual downside is also required. Lastly, one needs to purchase 5.3 contracts of the $24,000 call option to limit losses above the level.

Related: Kraken settles with US Treasury’s OFAC for violating US sanctions

This strategy yields a net gain if Bitcoin trades between $18,350 and $24,000 on Dec. 30. Net profits peak at 0.485 BTC ($7,860 at current prices) between $20,000 and $22,000, but they remain above 0.10 BTC ($1,620 at current prices) if Bitcoin trades in the $18,350 and $23,600 range.

The investment required to open this Iron Condor strategy is the maximum loss — 0.103 BTC or $1,670 — which will occur if Bitcoin trades below $18,000 on Dec 30. The benefit of this trade is that a wide target area is covered while providing a 475% return versus the potential loss.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Here’s how Bitcoin pro traders plan to profit from BTC’s eventual pop above $20K

Traders who believe BTC will break above $20,000 could use this low-risk options strategy to cast a long bullish bet.

Bitcoin (BTC) entered an ascending channel in mid-September and has continued to trade sideways activity near $19,500. Due to the bullish nature of the technical formation and a drop in the sell pressure from troubled miners, analysts expect a price increase over the next couple of months.

Bitcoin/USD price at FTX. Source: TradingView

Independent analyst @el_crypto_prof noted that BTC’s price formed a “1-2-3 Reversal-Pattern” on a daily time frame, hinting that $20,000 could flip to support soon.

Fundamental analysts are also attributing the sideways action to troubled Bitcoin-listed mining companies. For example, Stronghold Digital Mining announced a debt restructuring on Aug. 16 that included the return of 26,000 miners.

One public miner, Core Scientific, sold 12,000 BTC between May and July, while publicly traded mining companies sold 200% of their Bitcoin production. Bitcoin enthusiast @StoneysGhoster adds that excessive leverage caused the forced selling, not the mining activity, itself.

Regardless of the base case for Bitcoin’s price recovery above $20,000, investors fear the impact of an eventual stock market crash as central banks continue to increase interest rates to curb inflation.

Considering the persistent uncertainty caused by macroeconomic factors, a strategy that yields gains in the $21,000 to $28,000 range while limiting losses below $19,000 seems the most prudent. In that sense, options markets provide more flexibility to develop custom strategies.

It starts with selling put options for upside exposure

To maximize returns, investors could consider the Iron Condor options strategy that has been slightly skewed for a bullish outcome. Although the put option provides its buyer the privilege to sell an asset at a fixed price in the future — selling this instrument offers exposure to the price upside.

Bitcoin options Iron condor skewed strategy returns. Source: Deribit Position Builder

The above example has been set using the BTC Nov. 25 options at Deribit. To initiate the trade, the buyer should short (sell) 1 contract of the $23,000 call and put options. Then, the buyer needs to repeat the procedure for the $25,000 options.

To protect against extreme price movements, a put option at $19,000 has been used. Consequently, 2.6 contracts will be necessary, depending on the price paid for the remaining contracts.

Lastly, if Bitcoin’s price rips above $32,000, the buyer will need to acquire 1.6 call option contracts to limit the strategy’s potential loss.

The max profit is 2x larger than the potential loss

Even though the number of contracts in the above example aims for a maximum BTC 0.30 ($5,700) gain and a potential BTC 0.135 ($2,560) loss, most derivatives exchanges accept orders as low as 0.10 contracts. As a result, the strategy yields a net profit if Bitcoin trades between $20,000 and $29,600 (+56%) on Nov. 25.

The max net gain occurs between $23,000 and $25,000, yielding a return more than two times higher than the potential loss. Furthermore, with 35 days until the expiry date, this strategy gives the holder peace of mind —unlike futures trading, which comes with an inherent liquidation risk.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Bitcoin derivatives data forecasts sub-$30K BTC price heading into Friday’s $800M options expiry

Bulls placed too much hope on $32,000 flipping to support, an error that is bound to show by Friday’s $800 million BTC options expiry.

Bitcoin (BTC) briefly broke above $32,000 on May 31, but the excitement lasted less than four hours after the resistance level proved to be tougher than expected. The $32,300 level represented a 20% increase from the May 12 swing low at $27,000 and it provided the necessary hope for bulls to buy some $34,000 and higher call options.

The fleeting optimism reverted to a sellers’ market on June 1 after BTC dumped 7.6% in less than six hours and pinned the price below $30,000. The negative move coincided with the United States Federal Reserve starting the process of scaling down its $9 trillion balance sheet.

On June 2, former BitMEX exchange CEO Arthur Hayes argued that the Bitcoin bottom in May could have been a strong signal. Using on-chain data, Hayes predicts strong support at $25,000, given that $69,000 marked this cycle’s all-time high, a 64% drawdown.

Even though analysts might issue rosy price predictions, the threat of regulation continues to cap investor optimism and another blow came on June 2 when the U.S. Commodity Futures Trading Commission (CFTC) filed suit against Gemini Trust Co for alleged misleading statements in 2017 regarding the self-certification evaluation of a Bitcoin futures contract.

On June 7, a bill to ban digital assets as payment was introduced in the Russian parliament. The bill loosely defines digital financial assets as “electronic platforms,” which can be recognized as the subjects of the national payment system and obliged to submit to the central bank registry.

Bulls placed their bets at $32,000 and above

The open interest for the June 10 options expiry is $800 million but the actual figure will be much lower since bulls were overly-optimistic. These traders might have been fooled by the short-lived pump to $32,000 on May 31 because their bets for Friday’s options expiry extend up to $50,000.

Bitcoin options aggregate open interest for June 10. Source: CoinGlass

The 0.94 call-to-put ratio shows the balance between the $390 million call (buy) open interest and the $410 million put (sell) options. Currently, Bitcoin stands near $30,000, meaning most bullish bets are likely to become worthless.

If Bitcoin’s price moves below $30,000 at 8:00 am UTC on June 10, only $20 million worth of these call (buy) options will be available. This difference happens because a right to buy Bitcoin at $30,000 is useless if BTC trades below that level on expiry.

Bears aim for sub-$29,000 to profit $205 million

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 10 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $28,000 and $29,000: 50 calls vs. 7,400 puts. The net result favors the put (bear) instruments by $205 million.
  • Between $29,000 and $30,000: 700 calls vs. 5,500 puts. The net result favors bears by $140 million.
  • Between $30,000 and $32,000: 3,700 calls vs. 3,400 puts. The net result is balanced between bulls and bears.
  • Between $32,000 and $33,000: 7,700 calls vs. 750 puts. The net result favors the call (bull) instruments by $220 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Related: ‘Can it get any easier?’ Bitcoin whales dictate when to buy and sell BTC

Bulls will try to pin BTC above $30,000

Bitcoin bulls need to push the price above $30,000 on June 10 to avoid a $140 million loss. On the other hand, the bears’ best case scenario requires a pressure below $29,000 to maximize their gains.

Bitcoin bulls just had $200 million leverage long positions liquidated on June 6, so they should have less margin required to drive the price higher. With this said, bears will undoubtedly try to suppress BTC below $30,000 ahead of the June 10 options expiry.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.