Bitcoin’s market is gearing up for a significant event on December 29 at 8:00 am ET, as a $10.1 billion options expiry looms. The latest data shows that call options have the upper hand, but bears could limit their losses by pushing Bitcoin’s price below $42,000.
Both sides have incentives to influence the spot price of Bitcoin, and as the deadline approaches, the outcome can be predicted based on the expiry price. Deribit, the leader in the options market, has an impressive $7.7 billion open interest. However, the surprise comes from the Chicago Mercantile Exchange (CME), which is in second place with $1.38 billion. The CME’s open interest is more than double that of OKX, which is in third place with $630 million.
The expectation of a spot Bitcoin exchange-traded fund (ETF) approval in January has a significant impact on the December options expiry. The Securities and Exchange Commission (SEC) has changed its approach in engaging with ETF proponents, opting for dialogue instead of outright rejections. This shift raises expectations of potential ETF approval in January. This explains why bears are unlikely to succeed in suppressing Bitcoin’s price below $40,000 before the year-end BTC options expiry.
Another important development is Binance’s recent plea deal with the U.S. Department of Justice and regulators, which signifies the evolving cryptocurrency landscape towards compliance and Anti-Money Laundering practices. This development indicates increasing integration into the mainstream financial ecosystem, further bolstering the odds of spot ETF approval.
The aggregate open interest for the December options expiry stands at $10.1 billion. However, it is projected that the final amount will be lower, as the recent rally above $40,000 caught bearish investors off guard, as seen in the Deribit Bitcoin options interest chart.
The combined open interest of Deribit and CME options is $9 billion, with put options being underrepresented by 32% compared to call options. With Bitcoin’s 25% gain since November, most put options are likely to expire worthless.
If Bitcoin’s price remains near $43,100 at 8:00 am UTC on December 29, only $185 million worth of put options will be available. This is because the right to sell Bitcoin at $40,000 or $43,000 is useless if BTC trades above that level on expiry.
Bitcoin bears will want the price to stay below $42,000 to minimize losses. Based on the current price action, there are four likely scenarios with varying imbalances favoring each side. However, estimating the effect of investment strategies is complex and there is no straightforward way to do so.
For the bears to level the playing field before the monthly expiry, they need to achieve a modest 3% price decrease to $41,900. On the other hand, the bulls need a pump above $44,000 to secure a $1.15 billion advantage on December 29. The potential windfall for call option holders could act as a catalyst for further price gains leading up to the ETF decision in January.
This article does not provide investment advice or recommendations. Readers should conduct their own research and exercise caution when making investment decisions.