As the long-awaited deadline for a positive or negative decision on Bitcoin spot ETF Requests approaches, Bloomberg reports that the BTC options market is seeing increased hedging activity as traders prepare for a crucial decision on January 10.
The report indicates a rise in open interest for puts expiring on January 12, suggesting that market participants are taking steps to mitigate potential losses in the event of negative judgment by the United States Securities and Exchange Commission (SEC) regarding these index funds holding cryptocurrency.
The market prepares for the Bitcoin ETF verdict
The Bloomberg report highlights that the open interest Put options, which allow their holders to sell Bitcoin, saw 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 options compared to contracts with expiration dates further from the January 10 deadline.
As shown in the chart below, the most important strike prices for the put in contracts are $44,000, $42,000, and $40,000, respectively, indicating that put holders could exercise their options to minimize losses in the event of a negative market reaction to the SEC’s decision.
The put-to-call ratio, considered a measure of overall market sentiment, stood at 0.67 for options contracts on January 12, indicating a more cautious approach by traders.
Ryan Kim, Head of Derivatives at FalconX, suggests that leveraged/speculative traders use Bitcoin put options to protect their assets. long leveraged positionsanticipating significant price movements in both directions.
The higher put-call ratio for the January 12 options further reflects the market’s desire to protect against a possible negative decision.
The surge in open interest for puts expiring on January 12 indicates a growing need for protection in the event of an adverse decision. Although Bitcoin’s rally has softened the impact of its 2022 decline, market expectations for ETF approval may already be priced in, presenting potential risks to the market.
BTC Price Resistance and Potential Downside
Bitcoin has experienced a remarkable rally This year, expectations for the ETF’s approval have driven its price up more than 60% since mid-October.
However, the Bloomberg report suggests that the surge in demand for the expected ETFs could already be factored into the token’s price, potentially exposing the market to a “news sell-off” scenario in the second week of January.
Furthermore, QCP Capital, a Singapore-based crypto asset trading firm, predicts upper resistance for Bitcoin between $45,000 and $48,500 and a possible retracement to $36,000 levels before the uptrend resumes.
Bitcoin is currently trading at $43,400, experiencing a 1% decline over the past 24 hours. Over the past 14 days, the cryptocurrency has shown sideways price action with a slight decline of 0.4%.
Given Bitcoin’s well-known volatility, it remains uncertain how the market will react as the impending decision and potential catalysts approach, and how these factors will impact price dynamics.
However, the upcoming decision is not the only catalyst that could drive the price of Bitcoin higher in 2024. The cryptocurrency is also expected to see a significant catalyst in April 2024, known as halving event.
This event has historically led to a rise in the price of Bitcoin, and it is expected to propel the cryptocurrency beyond its previous all-time high (ATH) of $69,000 throughout the coming year.
Featured image from Shutterstock, chart from TradingView.com
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