No one can blame Bitcoin (BTC) bulls for placing bets at $20,000 and higher for the $600 million weekly options expiry on Nov. 18. After all, this level had provided a solid resistance since Oct. 25 and held for almost two weeks.
However, the base scenario changed abruptly on Nov. 8 after a liquidity crisis halted withdrawals on the FTX exchange. The movement surprised traders and over a 48-hour timespan, over $290 million in leverage buyers were liquidated.
The market quickly adjusted to the news, ranging from $15,800 to $17,800 for the past seven days. At the moment, investors are afraid that contagion risks might force other key players to sell their cryptocurrency positions.
FTX held significant deposits from key industry players, so its demise meant other participants would also face substantial losses. For example, BlockFi held a $400 million credit line with FTX US. On Nov. 15, collateralized yield platform SALT disclosed significant losses from the FTX collapse and subsequently halted withdrawals.
Similar events happened at the Japanese cryptocurrency exchange Liquid, increasing the uncertainty level in the entire market.
The Nov. 18 options expiry is especially relevant because Bitcoin bears can secure a $120 million profit by suppressing BTC below $16,500.
Bulls placed their bets at $20,000 and higher
The open interest for the Nov. 18 weekly options expiry is $600 million, but the actual figure will be lower since bulls were overly-optimistic. These traders missed the mark, placing bearish bets at $18,000 and higher, while BTC was dumped following the FTX insolvency.
The 1.00 call-to-put ratio shows the perfect balance between the $300 million put (sell) open interest and the $300 million call (buy) options. Nevertheless, as Bitcoin stands near $16,500, most bullish bets will become worthless.
If Bitcoin’s price remains below $17,500 at 8:00 am UTC on Oct. 21, only 10% of these call (buy) options will be available. This difference happens because a right to buy Bitcoin at $18,000 or $19,000 is worthless if BTC trades below the expiry price.
Bulls need a pump above $18,000 to come out ahead
Below are the four most likely scenarios based on the current price action. The number of Bitcoin options contracts available on Nov. 18 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
Between $15,500 and $16,500: 400 calls vs. 7,900 puts. The net result favors the put (bear) instruments by $120 million.
Between $16,500 and $17,500: 1,700 calls vs. 6,100 puts. The net result favors the put (bear) instruments by $75 million.
Between $17,500 and $18,000: 2,500 calls vs. 5,000 puts. The net result favors the put (bear) instruments by $45 million.
Between $18,000 and $18,500: 4,500 calls vs. 3,100 puts. The net result favors the call (bull) instruments by $25 million.
This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.
BTC price dips below $16,000 should not be surprising
Bitcoin bears need to push the price below $16,500 to secure a $120 million profit. The bulls’ best-case scenario requires a 10% pump above $18,000 to flip the tables and score a $25 million gain.
Considering that Bitcoin margin and options instruments show low confidence in regaining the $18,500 support, the most likely outcome for Friday’s expiry favors bears. Bulls might be better served by throwing in the towel and concentrating on the Nov. 25 monthly options expiry.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
That’s driven lots of new interest to some of the earliest decentralized players. Dan Gunsberg, creator of Solana-based derivatives exchange Hxro, said that in recent weeks he’s seen a boom in interest for his trading platform, which he claims cannot fall prey to the same pain points that felled FTX and its sister company, Alameda.
While bitcoin prices have been lower than the estimated cost of bitcoin production, the network’s hashrate has dropped a great deal since mid-November. Presently, the total hashrate dedicated to the Bitcoin network is coasting along at 236 exahash per second (EH/s) after dropping below the 200 EH/s range six days ago.
Bitcoin’s Hashrate Slips Lower
The first week of November 2022 was brutal for digital currency prices as FTX’s collapse rippled across the entire industry in a negative fashion. Prior to the FTX fallout, bitcoin was trading above the $20K zone and the network’s total hashrate was coasting along at roughly 270 to 290 exahash per second (EH/s) before the blowout.
There was a quick burst of increased hashrate the day after FTX filed for bankruptcy and BTC’s total hashrate tapped an all-time high on Nov. 12, 2022. At block height 762,845, bitcoin miners managed to get the hashrate to briefly rise to a whopping 347.16 EH/s. Since then, the hashrate has divebombed and slid below the 200 EH/s range on Nov. 26.
Presently, bitcoin miners have managed to rise above the 200 EH/s region, to the current 236 EH/s recorded at 10:15 a.m. (ET) on Dec. 2, 2022. The drop in hashrate indicates that unprofitable mining entities have been forced to shut down machines, while only the strong operators survive.
At the time of writing, the estimated cost of bitcoin production ($16,956) is awfully close to the leading crypto asset’s spot market value ($16,897). Previously, the cost of bitcoin production was $18,313 on Nov. 30, which was significantly higher than BTC’s spot market value. With a drop in BTC production costs, it makes it easier for current operators to survive.
Bitcoin miners are also expecting a large mining difficulty reduction between 6.56% to 7.9% lower than today’s difficulty rating on or around Dec. 5, 2022. Presently, the estimated mining difficulty reduction could be the largest difficulty drop the network has seen in 2022. Since Nov. 30, up until Dec. 2, 2022, roughly 80 exahash of hashpower has been removed from the network’s total hashrate.
What do you think about the current state of Bitcoin’s hashrate? Let us know what you think about this subject in the comments section below.
Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
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