Bitcoin (BTC) bulls jumped in to defend the $40,000 level after a devastating retest of the $38,000 support on March 7. The confidence and momentum that was building earlier in the month was suddenly shattered after BTC failed to break $44,500 for the third time this month on March 2.
The rally in Bitcoin price on March 9 has been attributed in part to the expected inflation data report from the United States. This week. Analysts are expecting another 40-year all-time high as the consumer price index (CPI) hits a 7.9% annual rise.
What’s more, A statement from US Treasury Secretary Janet Yellen on President Biden’s executive order on digital assets was somewhat softer than expected. Although it has been removed from the website, the order will apparently require “a coordinated and comprehensive approach to digital asset policy”.
Commodities rally was a harbinger of Bitcoin’s rise
Considering that the Bloomberg Commodity Index (BCOM) hit an all-time high of 134 on March 8, Bitcoin’s recent strength should come as no surprise. Despite correcting to 129, BCOM’s 30-day gains remain at 18.5%, according to MarketWatch.
According to open interest at Friday’s options expiry, Bitcoin bulls placed heavy bets between $44,000 and $48,000. These levels may seem bullish at the moment, but Bitcoin tested this level eight days ago.
A broader view uses the call-to-put ratio and shows a 40% advantage for Bitcoin bulls because $460M calls have higher open interest versus puts. of USD 330 million. However, the 1.40 call-to-put indicator is misleading because most bullish bets will lose their value.
For example, if the price of Bitcoin stays below $43,000 at 8:00 am UTC on March 11, only $190 million of those call options will be available. This effect occurs because there is no value in the right to buy Bitcoin at $44,000 if it trades below that level.
Bulls could pocket $140 million to $42,000
Below are the three most likely scenarios based on the current price action. The number of option contracts available on March 11 for bullish (call) and bearish (put) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical profit:
- Between $40,000 and $42,000: 2,600 call options vs. 2,100 put options. The net result is balanced between call and put options.
- Between $42,000 and $43,000: 4,500 call options vs. 1,150 put options. The net result favors the bulls by $140 million.
- Between $43,000 and $44,000: 5,100 call options vs. 700 put options. The net result favors purchase instruments (bullish) by USD 190 million.
This gross estimate considers call options to be used on bullish bets and put options exclusively on neutral to bearish trades. Still, this simplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price. Unfortunately, there is no easy way to estimate this effect.
The bears need a BTC price below 42,000 to balance the scales
Bitcoin bulls need to hold $42,000 to make a $140 million profit on March 11. Furthermore, a 2% price increase from the current level of $42,200 is enough for Bitcoin bulls to lock in a $190 million profit at Friday’s options expiry.
The bears will face a difficult time dragging the price given the positive short-term sentiment on inflation expectations and less pressure from regulators. Currently, data from the options markets favors call options.
The views and opinions expressed herein 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 do your own research when making a decision.
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