Bitcoin (BTC) bulls have placed most of their options at $24,500 or higher by the March 3 option expiration, and given BTC’s recent bullish momentum, who can blame them? On February 21, the price of Bitcoin briefly broke above $25,200, reflecting an eight-day rally of 18%. Unfortunately, Regulatory pressure on the cryptocurrency sector has increased, and despite no effective measures being announced, investors remain cautious and reactive to comments from policy makers.
For example, on February 23, the chairman of the US Securities and Exchange Commission, Gary Gensler, stated that “everything other than Bitcoin” falls under the jurisdiction of the agency. Gensler noted that most crypto projects “are securities because there is a pool in the middle and the public is anticipating benefits based on that pool.”
Comments on March 1 from two US Federal Reserve (FED) officials reiterated the need for even more aggressive interest rate hikes to curb inflation. Comments from Minneapolis Fed Chairman Neel Kashkari and Atlanta Fed President Raphael Bostic also lowered investor expectations for a 2023 monetary policy reversal.
The tougher stance in the macroeconomic and regulatory environment for cryptocurrencies caused investors to rethink their exposure to cryptocurrencies. However, the Bitcoin price plunge all but extinguished bulls’ expectations of an options expiration of $24,500 or higher on March 3, so their bets are unlikely to pay off as the date nears. deadline.
Negative comments from regulators “pulled the blanket” on bulls
Open interest for the March 3 options expiration is $710 million, but the actual figure will be lower as bulls got too confident after Bitcoin traded above $25,000 on February 21.
The ratio of 1.12 between call and put options reflects the imbalance between the open interest for the purchase of USD 400 million and the sale of 310 million. However, the expected result is likely to be much lower in terms of active open interest.
For example, if the price of Bitcoin remains near $23,600 at 8:00 am UTC on March 3, only $50 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $24,000 or $25,000 is worthless if BTC trades below that level at expiration.
The bears have set their trap below $23,000
Below are the four most likely scenarios based on current price action. The number of option contracts available on March 3 for the buy (bullish) and sell (bearish) instruments varies depending on the expiration price. The imbalance that favors each side constitutes the theoretical benefit:
- Between USD 22,000 and USD 22,500: 700 purchase options (calls) vs. 6,200 put options. The net result favors put instruments (bearish) by USD 120 million.
- Between USD 22,500 and USD 23,000: 1,000 purchase options (calls) vs. 4,800 sale options (puts). The net result favors put instruments (bearish) by USD 85 million.
- Between USD 23,000 and USD 24,000: 2,100 purchase options (calls) vs. 1,800 put options. The net result is balanced between bulls and bears.
- Between USD 24,000 and USD 25,000: 4,900 purchase options (calls) vs. 400 sale options (puts). The net result favors the call instruments (bullish) by USD 110 million.
This crude estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this simplification bypasses more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specified price, but unfortunately, there is no easy way to estimate this effect.
Could Weak US Mortgage Applications Benefit BTC Bulls?
Bitcoin bulls need to push the price above $24,000 on March 3 to lock in a potential profit of $110 million. However, data from the Mortgage Bankers Association announcement on March 1 could turn the tide favorably for BTC. The weekly volume of mortgage applications decreased by 44% compared to the same period in 2022, reaching the lowest level in 28 years.
Taking into account the negative pressure from regulators and that investors are waiting for the next decision of the FED on March 22, bears have a good chance of pushing BTC below $23,000 and profiting from $85 million in the weekly options expiry on March 3. Still, there is hope for Bitcoin bulls depending on how traditional markets react to bearish mortgage application data.
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