Bitcoin (BTC) bulls turned the tables after options expired on March 4 after a 14% rally on February 28. Maintaining the price above $43,000 confirms the detachment from the traditional markets. For example, the MSCI Emerging Stocks Index is down 3.5% in five days, while the Russell 2000 Small-Capitalization Index in the US is up 0.9%.
Investors are increasingly concerned about the implications of the US Federal Reserve’s rate hikes expected through 2022. As a result, some large companies have struggled over the past 30 days. For example, Paypal’s PYPL fell 38%, META corrected 34%, and Shopify SHOP lost 31.5%.
The US 40-year CPI (7.5%) forced investors to take profits from riskier assets, and the US Dollar Index (DXY) reached a 20-month high of 97.6. DXY measures the dollar’s strength against a basket of major foreign currencies and it is increasing as traders turn to North American money.
Bitcoin has high risks, but the price seems underestimated
Bitcoin’s recent strength has surprised most investors as the correlation with the Nasdaq Composite Index reached 73% on February 20, approaching a five-year high of 74% in 2020.
The buy (put) and put options are aligned with the option’s March 4 expiration date, but the bears were put into custody after the price of bitcoin settled above $43,000 this week.
Bitcoin options consolidate open interest rates on March 4th. Source: CoinGlass
The broader view using the buy-to-sell ratio shows a balance between $450 million in open interest (buying) and $440 million in speculative interest (selling). However, the 1.02 buy index is misleading as most bearish games will be worthless.
For example, if the bitcoin price stays above $43,000 at . At 8:00 UTC on February 11, only $155 million worth of put options will be available. This difference arises because the right to sell bitcoin for $40,000 is worthless if it is trading above this level at expiration.
Bulls can earn $320 million
Here are the three most likely scenarios based on current price action. The number of options contracts available on March 4th for bullish (buy) and bearish (sell) instruments varies depending on the expiration price. The imbalance in favor of each side is the theoretical advantage:
$42,000 to $44,000: 560 calls for 150 points. Net income of $175 million for Communication Tools (rising).
$44,000 to $46,000: 760 calls for 40 pips. The net profit of the bulls is $320 million.
$46,000 to $47,000: 840 calls for 5 points. The bulls increased their earnings to 380 million dollars.
This rough estimate takes into account the positions used for bearish bets and is only shown in neutral or bullish trades. However, this oversimplification overlooks more complex investment strategies.
For example, a trader can sell a put option, effectively getting a positive share of bitcoins above a certain price. Unfortunately, there is no easy way to assess this effect.
Related: Bitcoin Is A ‘Good Bet’ If The Fed Continues To Loosen To Avoid Recession Analysts
The bears will probably give up
Bitcoin bulls need 1% pump over $44,000 to make $250 million on March 3rd. On the other hand, a best-case scenario for bears would require a 4.5% drop in prices from the current level of $44,800 to reduce losses to $110 million.
Bitcoin bears recently liquidated $300 million in short positions with leverage, so they are unlikely to get the support they need to pressure the BTC price in the short term.
However, the bulls are likely to continue to show strength, pushing the price to $45,000 or higher during the March 4 options expiration.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading involves risks. You should do your research when making a decision.