Regulation remains the top concern for Bitcoin bulls, especially after the Commodity Futures Trading Commission (CFTC) sued Binance for trading and derivatives law violations. The regulator wants Binance to return trading profits, income, salaries, commissions, loans, and fees it received from US citizens, in addition to paying civil penalties for violations.
Bitcoin’s price rise was also fueled by a shift in sentiment towards risky assets after US Federal Reserve Chairman Jerome Powell said interest rate hikes are no longer the default measure to curb inflation. The central bank understood that the current situation will likely “lead to more restrictive credit conditions for households and businesses, which in turn would affect economic outcomes.”
Fixed income investors earn more when interest rates rise, making buying stocks and commodities less attractive. Consequently, by reversing the strategy and adding $339 billion in liabilities in two weeks, the Federal Reserve chose to contain the banking crisis, which may cause an uncontrolled inflationary spiral.
Given the rising risk asset scenario, Bitcoin bulls can benefit from as much as $1.4 billion in the monthly options expiration on Friday.
Bitcoin bears were caught completely by surprise
Open interest for the March 31 options expiration is $4.2bn, but the actual figure will be lower as bears expected price levels below $26.5bn. These traders were caught off guard when Bitcoin rose 32% between March 12 and 17.
The 1.34 put to call ratio reflects the imbalance between the $2.4 billion of open interest in call options and the $1.8 billion in put options. However, if the Bitcoin price sustains near $28,000 at 8:00 am UTC on March 31, only $25 million worth of put options will be available. This difference occurs because the right to sell Bitcoin at $26,000 or $27,000 is worthless if BTC trades above that level at expiration.
Bulls target $29,000 price for record $1.4 billion profit
Below are the four most likely scenarios based on current price developments. The number of option contracts available on March 31 for the call (bullish) and put (bearish) instruments varies depending on the expiration price. The imbalance that favors each side constitutes the theoretical benefit:
- Between $25,000 and $26,000: 27,200 call options vs. 12,700 put options. The net result favors buy instruments (bullish) by USD 360 million.
- Between $26,000 and $27,000: 32,300 call options vs. 8,500 put options. The net result favors buy instruments (bullish) by USD 620 million.
- Between $27,000 and $28,000: 38,100 call options vs. 3,000 put options. The bulls increase their lead to $1.2 billion.
- Between $28,000 and $30,000: 48,300 call options vs. 400 put options. Bulls dominate by profiting from $1.4 billion.
This rough estimate considers call options used in bullish bets and put options exclusively in trades between neutral and bearish. Even so, this oversimplification does not take into account more complex investment strategies.
For example, a trader could have sold a call option, thereby gaining negative exposure to Bitcoin above a specified price, but unfortunately there is no easy way to estimate this effect.
Bears’ best hope rests on regulatory FUD
Bitcoin bulls need to push the price above $29,000 by March 31 to lock in a potential profit of $1.4 billion. The bears’ best bet, on the other hand, is more regulatory FUD on stablecoins or major cryptocurrency exchanges, which has so far been unsuccessful.
Considering the bullish momentum created by the Fed’s inability to continue raising interest rates, bulls are well positioned for the expiration of BTC’s March monthly options. Those gains will most likely be used to further bolster the support at $28,000, so the expected outcome is especially worrisome for bears.
The Bitcoin (BTC) price has been hovering around $28,000 for the past ten days, but the cryptocurrency has gained 70.5% year-to-date. As of March 17, Bitcoin was trading below $25,000 and this explains why most of the bearish bets for the $4.2 billion March option expiration were placed at or below $26,500.
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