Bitcoin Shakes Off the Bears and Aims for $20,000 By End Of Year

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Bitcoin remains rangebound, hovering around its yearly lows, with some short timeframe bullish momentum. The cryptocurrency suffered amid the FTX’s collapse and the subsequent contagion, but market participants seem more optimistic about potential profits. 

As of this writing, Bitcoin has retraced back to yesterday’s highs. The BTC’s price is trading at $16,500 with sideways movement across the board. Other cryptocurrencies in the top 10 by market cap display similar price action. XRP remains the best-performing asset on the ranking. 

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BTC’s price moving sideways on the daily chart. Source: BTCUSDT Tradingview

Bitcoin Sentiment Improves On The Derivatives Sector

Data from the Options platform Deribit indicates that the shift in sentiment impacts this sector. The FTX collapse and the uncertainty around other crypto companies, such as Digital Currency Group (DCG) and crypto lender Genesis, kept the market on its toes.

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The latter company halted the withdrawal requests from its customers, and it’s looking to raise emergency capital to resume operations. According to the rumors that circulated last week, Genesis’s parent company DCG might be affected. 

The company denied the speculations and reaffirmed its long-term intentions to stay in the industry. As a result, the crypto market bounced as investors’ confidence improved. In addition, the U.S. Federal Reserve is hinting at a potential pivot. 

These two elements support the bullish momentum. Deribit noted that bulls took advantage of last week’s downside price action to accumulate Calls (buy orders) on the cheap. 

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Optimistic investors are acquiring calls with strike prices above $17,000, $18,000, and $19,000 into December. In other words, the options market is betting on Bitcoin, trending higher by the end of the year. 

Deribit noted the following on Implied Volatility (IV), a metric affected by recent events. The metric is returning to normal levels hinting at the market finally absorbing any risk associated with FTX: However, options with close expiration dates (December 2th) might decay in value due to the low trading volume weekend. 

(…) the news flow reprieve has also allowed implied vol to retrace from a high-tension backwardation a few days ago, to a more normal contango term structure.

BTC Options’ implied volatility declines after the FTX collapse. Source: Deribit

A Christmas Miracle?

In the last 24 hours, the options trading venue noted, bearish investors have been offloading some of their sell (put) contracts. These investors are betting on Bitcoin going lower than $10,000. There is still some bearish activity targeting the end of 2022. 

However, these investors might be hedging long spot positions and shielding themselves from potential unexpected events. The current state of the crypto market and the possibility of more contagion make this strategy favorable for long-term investors. 

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Additional data provided by Deribit indicates that the sector has almost $5 billion in total Open Interest (OI). The majority of this metric seems positioned to the upside. 

For the December 30th expiry, bullish investors are betting at Bitcoin surpassing $30,000. The max pain scenario, where most options expired worthless, stands at $20,000. 

BTC Options’ Open Interest for the December 30th expiry. Source: Deribit

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Author: Reynaldo Marquez


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