The Biden administration’s dovish approach to regulating the crypto sector and the recovery in stock markets could give bulls a boost in $790 million worth of Friday options expiration.
Bitcoin (BTC) bulls stepped in to protect $40,000 after a devastating retest of $38,000 support on March 7th. The confidence and momentum that had been building earlier this month was suddenly shaken after BTC failed to break through $44,500 for the third time this month. 2nd of March.
The rise in Bitcoin prices on March 9 was partly due to the expected US inflation report this week. Analysts are expecting another 40-year record as the consumer price index (CPI) shows a 7.9% year-on-year increase.
In addition, US Treasury Secretary Janet Yellen’s announcement of President Biden’s Digital Assets Executive Order was softer than expected. Although it was removed from the US Department of the Treasury website because it appeared to have been posted early in error, the order appears to call for a “coordinated and comprehensive approach to digital asset policy.”
Commodity rally was a harbinger of bitcoin’s surge
With the Bloomberg Commodities Index (BCOM) hitting an all-time high of 134 on March 8, Bitcoin’s recent strength should come as no surprise. Despite the correction to 129, BCOM’s 30-day cumulative gain remains at 18.5%, according to MarketWatch.
According to open interest at the expiration of the options on Friday, Bitcoin bulls made big bets from $44,000 to $48,000. These levels may seem bullish at the moment, but Bitcoin tested this level eight days ago.
Bitcoin options total open interest on March 11th. Source: CoinGlass
The broader view uses a call-to-put relationship and shows a 40% advantage for Bitcoin bulls as $460 million calls (buy) instruments have greater open interest compared to $330 million puts (sell). However, the 1.40 call to put indicator is misleading as most bullish bets become worthless.
For example, if the price of Bitcoin stays below $43,000 at 8:00 UTC on March 11th, these buying options will only be available in the amount of $190 million. This effect occurs because the right to buy Bitcoin at $44,000 has no value when trading below that level.
Bulls can make $140 million at $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 depends on the expiration price. The imbalance in favor of each side is the theoretical payoff:
$40,000 to $42,000: 2,600 calls versus 2,100 puts. The net result is balanced between call (bullish) and put (bearish) options.
$42,000 to $43,000: 4,500 calls versus 1,150 puts. The net result in favor of the bulls is $140 million.
$43,000 to $44,000: 5,100 calls versus 700 puts. Net result in favor of $190 million calls (bullish).
This estimate takes into account call options used in bullish bets and put options used exclusively in neutral or bearish trades. However, this simplification ignores more complex investment strategies.
For example, a trader could sell a call option, effectively taking a negative exposure to bitcoin above a certain price. Unfortunately, there is no easy way to evaluate this effect.
Bears need BTC price below $42,000 to balance the scales
Bitcoin bulls need $42,000 to make a $140 million profit on March 11th. In addition, a price increase of just 2% from the current $42,200 is enough for Bitcoin bulls to lock in $190 million in profits when the options expire on Friday.
With short-term positive inflation expectations and reduced pressure from regulators, it will be difficult for the bears to push the price down. Options market data is currently favoring call options (buy).
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 move involves risk. When making a decision, you should do your own research.