Bitcoin Shrugs Off the Bears and Targets $20,000 by Year-End, Can It Do It?

Bitcoin remains range-bound and hovering around yearly lows, with near-term bullish momentum. the cryptocurrency suffered from the FTX collapse and subsequent contagion, but market participants seem more optimistic about potential gains.

As of this writing, Bitcoin has retreated to yesterday’s highs. BTC price is trading at $16,500 with sideways movement across the board. Other cryptocurrencies in the top 10 after market capitalization show similar price movements. XRP remains the top-performing asset in the rankings.

BTC price is moving sideways on the daily chart. Source: BTCUSDT trade view

Bitcoin sentiment improves in derivatives sector

Data from options platform Deribit suggests the shift in sentiment is affecting this sector. The collapse of FTX and uncertainty surrounding other crypto companies such as Digital Currency Group (DCG) and crypto lender Genesis kept the market on edge.

The latter company has halted its customers’ withdrawal requests and is attempting to raise emergency funds to restart operations. According to rumors circulating last week, Genesi’s parent company DCG could be affected.

The company denied the speculation and reiterated its long-term intentions to stay in the industry. As a result, the crypto market rallied as investor confidence improved. In addition, the US Federal Reserve is indicating a possible turnaround.

These two elements support the bullish momentum. Deribit noted that the bulls used last week’s downside to accumulate cheap calls (buy orders).

Bullish investors are buying calls with strikes above $17,000, $18,000 and $19,000 into December. In other words, the options market is betting on bitcoin and trending higher through the end of the year.

Deribit noted the following on implied volatility (IV), a metric that has been impacted by recent events. The metric is returning to normal levels, suggesting that the market is finally absorbing all the risks associated with FTX: however, options with expiry dates close (December 2nd) could lose value due to low trading volume over the weekend.

(…) The news flow reprieve has also allowed implied volatility to be retraced from a high tension backwardation of a few days ago to a more normal contango term structure.

BTC options implied volatility decreases after FTX collapse. Source: Deribit

A Christmas Miracle?

In the past 24 hours, according to the options trading venue, bearish investors have dumped some of their sell (put) contracts. These investors are betting on Bitcoin falling below $10,000. There is still some bearish activity targeting the end of 2022.

However, these investors could hedge long spot positions and protect themselves from possible unexpected events. The current state of the crypto market and the possibility of further contagion make this strategy favorable for long-term investors.

Additional data provided by Deribit indicates that the sector has almost $5 billion in open interest (OI) overall. The majority of this metric appears to be positioned to the upside.

For December 30 expiration, bullish investors are betting on Bitcoin surpassing $30,000. The maximum pain scenario where most options expire worthless is $20,000.

BTC options open interest for expiry on December 30th. Source: Deribit