Bitcoin’s (BTC) 90% year-to-date gain was largely fueled by the United States Securities and Exchange Commission’s (SEC) recent exchange-traded fund (ETF) approval and in the first 48-hours of listing, ProShares’ Bitcoin Strategy ETF (BITO) was able to amass $1.1 billion in assets under management.
On Nov. 1, the U.S. Treasury released its stablecoins report, which basically urged Congress to regulate the industry. In short, the working group expects government agencies to require stablecoin issuers to meet the same standards as insured depository institutions.
Although the consequences of a potential stablecoin regulation for cryptocurrency markets remain unknown, stablecoins are vital for exchanges, market makers and retail investors when seeking protection. Despite this, investors still must account for the possibility that stablecoin issuers will react by simply moving their operations outside U.S. jurisdiction.
With less than 12 hours ahead of Friday’s $1.15 billion options expiry, Bitcoin trades in a descending channel and faces resistance at the $62,000 to $63,000 level.
The ETF expectation could have been the reason for the bulls’ excessive optimism, which can be seen in the $68,000 and higher bets for the Nov. 5 expiry. Even with having $740 million stacked in call (buy) options, bulls might have missed an opportunity to score some relevant profits.
At first sight, the 11,215 BTC call (buy) options dominate the weekly expiry by 82% compared to the 6,146 BTC put (sell) instruments. Still, the 1.82 call-to-put ratio is deceptive because some of those prices now seem far-fetched.
For example, if Bitcoin’s price remains above $60,000 at 8:00 am UTC on Nov. 5, only $70 million out of the $405 million worth of put (sell) options will be available at the expiry. There is no value in having the right to sell Bitcoin at $55,000 if it’s trading above that price.
Bears need sub-$62,000 to balance the scales
Below are the four most likely scenarios for the $1.15 billion Nov. 5 expiry. The imbalance favoring either side represents the theoretical profit. In other words, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:
- Between $58,000 and $60,000: 270 calls vs. 1,800 puts. The net result favors put (bear) instruments by $90 million.
- Between $60,000 and $62,000: 630 calls vs. 350 puts. The net result favors put (bear) instruments by $15 million.
- Between $62,000 and $64,000: 1,560 calls vs. 370 puts. The net result is $75 million favoring the call (bull) instruments.
- Above $64,000: 2,890 calls vs. 100 puts. The net result is complete dominance, with bulls profiting $175 million.
This crude estimate considers call (buy) options used in bullish strategies and put (sell) options exclusively in neutral-to-bearish trades. However, a trader could have sold a put option, effectively gaining a positive exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.
Bulls have a clear shot at securing a $175 million profit
Currently, Bitcoin price oscillates near $62,000 and there are incentives in place for bulls to push BTC up 3.5% to $64,000 ahead of Friday’s expiry. In that case, their estimated profits should increase by $100 million.
On the other hand, considering Bitcoin’s 39% rally in October, bears would be more than pleased to take a $15 million loss if the BTC expiry price remains below $62,000.
Avoiding a $175 million profit from bulls is the bears’ best-case scenario right now because, during bull runs, the amount of effort a seller needs to impact the price is immense and usually ineffective.