The bears have a $100 million reason to keep bitcoin price below $45,000

Some analysts argue that Bitcoin (BTC) rallied too soon and the weakness we see on April 7th is due to this. Currently, a new variant of COVID-19 has prompted the Chinese government to impose strict restrictions in Shanghai and other major cities, and ongoing regulatory concerns continue to weigh on sentiment in the cryptocurrency sector.

Another worrying development is the vote by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on March 31 to update regulations on exchanges’ ability to deal with non-custodial cryptocurrency wallets.

Should the draft regulation make it to the legislative stage in the coming months, it would impose strict disclosure requirements for transactions on crypto exchanges in the European Union.

Bitcoin/USD 1-day price chart. Source: TradingView
The bears have a $100 million reason to keep bitcoin price below $45,000
The bears have a $100 million reason to keep bitcoin price below $45,000

Not everything has been negative for bitcoin, as the cost of transporting bitcoin through the network has hit a decade low, according to research by Galaxy Digital. The average bitcoin transaction fee fell to 0.00001292 bitcoin ($0.59) in 2022, the lowest in 11 years.

According to Glassnode on-chain analyst James Check, “batching and segwit are definitely among them” because they increase the number of transactions that fit in a block.

The cops were taken by surprise

Bitcoin’s drop below $45,000 on April 6th caught the bulls by surprise as only 8% of call option bets for April 8th were placed below that price level.

The bulls could have been fooled by the recent attempt to break above $48,000 on March 29, and this is reflected in their bets on the April 8 expiration of the $610 million option, which surge as high as $65,000.

Total Bitcoin Options Open Interest for April 8th. Source: CoinGlass

A broader view using the 0.97 call-to-put ratio shows even bets between the $300 million open interest on calls and the $310 million on puts. Now that Bitcoin is back below $45,000, most of these bull bets will lose value.

For example, if the price of Bitcoin stays below $45,000 at 8:00 UTC on April 8, only $24 million of these call options will be available. This difference occurs because there is no point in buying Bitcoin at $50,000 if it is trading below that level on expiry.

The bears are aiming for a profit of $145 million

Below are the four most likely scenarios based on current price action. The number of option contracts available on April 8 for call (bullish) and put (bearish) instruments varies by expiry price. The imbalance in favor of each side represents the theoretical gain:

  • Between $42,000 and $44,000: 250 call options vs. 3,650 put options. The net result favors buy instruments (bearish) by USD 145 million.
  • Between $44,000 and $45,000: 550 call options vs. 2,800 put options. The net result favors the bears by $100 million.
  • Between $45,000 and $46,000: 700 call options versus 2,150 put options. The net result favors the bears by $60 million.
  • Between $46,000 and $47,000: 1,800 call options vs. 1,500 put options. The net result is balanced between call and put options.

This rough estimate considers call options for bullish bets and put options for neutral to bearish trades only. However, this simplification 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 gauge this effect.

Bears have incentives to suppress bitcoin price

Bitcoin bears need to push the price below $44,000 on April 8th to lock in a $145 million profit. On the other hand, the bulls best-case scenario calls for a 4.3% gain from the current zone of $44,200-$46,000 to even the scales.

Bitcoin bulls had liquidated $65 million in leveraged long positions as of April 6, leaving them likely with fewer resources to push the price higher in the short-term. That being said, the bears are likely to attempt to sink BTC below $45,000 before the options expire on April 8.

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

Investing in crypto assets is not regulated. They may not be suitable for retail investors and you may lose the entire amount invested. The services or products offered are not intended for and are not accessible to investors in Spain.

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