Bitcoin (BTC) has observed an ascending triangle formation over the past two months, bouncing off support and resistance lines multiple times. While this may sound positive, the price is still down 11% this year. By comparison, the Bloomberg Commodity Index (BCOM) rose 29% over the same period.
1-day Bitcoin/USD chart on FTX. Source: Trading View
The broader commodity index was affected by higher prices for crude oil, natural gas, corn, wheat and lean pork. Meanwhile, the total market capitalization of cryptocurrencies has failed to overcome the $2 trillion resistance level and currently stands at $1.98 trillion.
In addition to 40 years of record high inflation in the United States, a $1.5 trillion spending bill was approved on March 15, enough to fund the government through September. Deteriorating macroeconomic conditions pushed up the supply curve, which in turn pushed up commodity prices.
For these reasons, cryptocurrency traders are increasingly concerned about the US Federal Reserve’s interest rate hike, which is expected to contain inflationary pressures until 2022.
If the global economy enters a recession, investors will seek protection in US government bonds and the US dollar itself and abandon risk classes on assets such as cryptocurrencies.
Bulls place bets of $100,000 and up.
The open interest rate for bitcoin options with an expiration of March 25 is $3.34 billion, but the actual figure will be much lower because the bulls were very optimistic.
These traders may have been fooled by the short-term jump to $45,000 on March 2 as their option bets of over $100,000 expire on March 25.
Even Bitcoin’s recent rally above $42,000 surprised the bears because only 16% of the bearish alternative plays on March 25 were placed above this price level.
Bitcoin options collect open interest rates March 25th. Source: CoinGlass
The buy-to-sell ratio of 1.75 shows an even more important bet, as the open interest rate on the buy (acquisition) is $2.13 billion versus $1.21 billion put options. However, as Bitcoin approaches $42,000, most of the bear games are likely to be worthless.
For example, if the price of Bitcoin stays above $42,000 at 8:00 UTC on March 25th, then these short options will only be available for $192 million. This difference arises because there is no need for the right to sell Bitcoin for $40k if it trades above that level at expiration.
Bulls plans to raise $280 million
Here are the three most likely scenarios based on the current price movement. The number of option contracts available on March 25 for buy (bullish) and sell (bear) instruments varies depending on the expiration price. The disadvantage of each side is the theoretical advantage:
$39,000 to $42,000: 6,300 calls for 6,300 points. The net result balances between buying (bullish) and selling (bearish).
$42,000 to $44,000: 8,700 calls for 4,600 points. The net result in favor of the bulls is $175 million.
$44,000 to $45,000: 10,600 calls versus 4,300 puts. The Bulls increased their winnings to $280 million.
This approximation takes into account call options used in bearish trades and only call options in neutral or bullish trades. However, this oversimplification overlooks more complex investment strategies.
For example, a trader may sell a put option, effectively achieving a positive impact on bitcoin above a certain price, but unfortunately there is no easy way to measure this effect.
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Bears will want to keep Bitcoin below $42,000
Bitcoin bears must push the price below $42,000 on March 25 to avoid losing $175 million. On the other hand, at best, it would take the bulls more than $44,000 to squeeze in profits to $280 million.
The Bitcoin Bears liquidated $150 million in credit card positions on March 22, so they should have the smaller margin needed to push the price of Bitcoin down. That being said, the Bulls will no doubt try to defend $42,000 before the options expire on March 25th.