Bitcoin’s market is gearing up for a significant event—a $10.1 billion options expiry scheduled for December 29th at 8:00 am ET. 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 a vested interest in influencing Bitcoin’s spot price, 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 has $1.38 billion in open interest. CME’s open interest is more than double that of OKX, which is in third place with $630 million.
The impending approval of a spot Bitcoin exchange-traded fund (ETF) in January has a significant impact on the December options expiry. The Securities and Exchange Commission (SEC) has changed its approach to engaging with ETF proponents. Instead of outright rejections, the SEC has been actively engaging in dialogue with ETF creators. This shift is seen as a positive signal and raises expectations of potential ETF approval in January. This alone explains why bears are unlikely to succeed in suppressing Bitcoin’s price below $40,000 before the year-end BTC options expiry.
Another noteworthy development is Binance’s recent plea deal with the U.S. Department of Justice and regulators, which indicates the evolving cryptocurrency landscape towards compliance and Anti-Money Laundering practices. This development signifies the increasing integration of cryptocurrencies into the mainstream financial ecosystem, further bolstering the chances of spot ETF approval. This is especially true after the changes made to the board of Grayscale Investments and the subsequent refiling of its request to convert the Grayscale GBTC Trust.
The aggregate open interest for the December options expiry is $10.1 billion. However, it is projected that the final amount will be lower due to the recent rally above $40,000, which caught bearish investors off guard, as seen from 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, which have $5.4 billion in open interest. Given Bitcoin’s 25% gain since November, most of the put options are likely to expire worthless.
If Bitcoin’s price remains near $43,100 at 8:00 am UTC on December 29th, only $185 million worth of put options will be available. This difference arises because the right to sell Bitcoin at $40,000 or $43,000 becomes 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, here are the four most likely scenarios and their corresponding net results:
1. Between $39,000 and $40,000: 3,000 calls vs. 17,700 puts. The net result favors the put instruments by $575 million.
2. Between $40,000 and $42,000: 13,800 calls vs. 11,600 puts. The net result favors the call instruments by $90 million.
3. Between $42,000 and $44,000: 24,200 calls vs. 7,200 puts. The net result favors the call instruments by $730 million.
4. Between $44,000 and $45,000: 27,900 calls vs. 1,800 puts. The net result favors the call instruments by $1.15 billion.
To level the playing field before the monthly expiry, bears must achieve a modest 3% price decrease to $41,900. On the other hand, bulls need the price to pump above $44,000 to secure a $1.15 billion advantage on December 29th. The potential windfall for call option holders could serve as a catalyst for further price gains leading up to the ETF decision in January.
Please note that this article does not provide investment advice or recommendations. Every investment and trading move carries risks, and readers should conduct their own research before making any decisions.