While Bitcoin’s rally has softened the impact of its decline in 2022, market expectations for ETF approval may already be priced in, posing potential risks for the market.
As the long-awaited deadline for a positive or negative decision on Bitcoin spot ETF applications approaches, Bloomberg reports that the BTC options market is seeing increased covering activity as traders prepare to a crucial decision on January 10.
The report indicates an increase in open interest for puts expiring on January 12, suggesting that market participants are taking steps to mitigate potential losses in the event of a negative verdict from the Securities and Exchange Commission. (SEC) regarding these index funds.
Market Braces for Bitcoin ETF Verdict
The Bloomberg report highlights that open interest for put options, which allow holders to sell Bitcoin, has seen a significant increase for contracts expiring on January 12. This increase in open interest has resulted in a higher put-to-call ratio for these specific contracts, as compared to contracts with expiration dates further away from the January 10 deadline.
The top strike prices for the put contracts are $44,000, $42,000, and $40,000, respectively, indicating that put option holders could exercise their options to minimize losses in case of a negative market reaction to the SEC’s decision.
The put-call ratio, considered a measure of overall market sentiment, stands at 0.67 for the January 12 options contracts, indicating a more cautious approach among traders.
Ryan Kim, head of derivatives at FalconX, suggests that leveraged/speculative traders are employing Bitcoin puts to protect their leveraged long positions, anticipating significant price movements in either direction.
The higher buy rate for January 12 options further reflects the market’s desire for protection against a potential negative call. The increase in open interest for puts expiring on January 12 indicates a growing need for protection in the event of an unfavorable ruling.
BTC Price Resistance and Possible Drop
Bitcoin has seen a notable rally this year, with expectations of ETF approval sending its price up more than 60% since mid-October. However, the Bloomberg report suggests that the anticipated increase in demand for the ETFs may already be factored into the price of the token, potentially exposing the market to a “sell the news” scenario in the second week of January.
Additionally, QCP Capital, a Singapore-based crypto asset trading firm, predicts overhead resistance for Bitcoin in the $45,000 to $48,500 range and a possible pullback to $36,000 levels before the uptrend resumes.
Bitcoin is currently trading at $43,400, seeing a 1% drop in the last 24 hours. Over the past 14 days, the cryptocurrency has shown sideways price movement with a slight decline of 0.4%. Given Bitcoin’s known volatility, it remains uncertain how the market will react as the impending decision and potential catalysts approach, and how these factors will affect its price dynamics.
However, the upcoming decision is not the only catalyst that can potentially boost the price of Bitcoin in 2024. The cryptocurrency is also predicted to experience a significant catalyst in April 2024, known as the halving event.
This halving event has historically resulted in an increase in the price of Bitcoin, and is anticipated to push the cryptocurrency past its previous all-time high (ATH) of $69,000 over the next year.
Meanwhile, as the crypto community eagerly awaits the possible approval of a BTC spot Bitcoin exchange-traded fund (ETF) in the United States, some analysts warn that this could trigger unintended consequences for cryptocurrency exchanges.
By Leonardo Perez
