Over the past two months, Bitcoin (BTC) has respected a slight upward trend, bouncing several times on its support.
While that may sound positive, Bitcoin’s performance so far remains a meager negative 14%. By contrast, the Bloomberg Commodity Index (BCOM) gained 2% over the same period.
Bitcoin/USD 1 Day Candlestick Chart. Source: TradingView
The broader commodities index benefited from price increases for crude oil, natural gas, gold, corn and lean pigs. Deteriorating macroeconomic conditions put pressure on the supply curve, pushing the equilibrium price higher.
In addition, the United States approved a $1.5 trillion spending account on March 15, which the government will fund through September. The signing of the legislation by President Joe Biden prevents a government shutdown, but puts further pressure on the US national debt, now more than $30.3 trillion.
Still, cryptocurrency traders are increasingly concerned about the US Federal Reserve’s projected rate hikes in 2022 to contain inflationary pressures.
Investors took profits on riskier assets, leading the US Dollar Index (DXY) to reach its 21-month high of 99.2 on March 11. The index measures the dollar’s strength against a basket of top foreign currencies.
Bearish bets are usually under $40,000
Bitcoin’s recovery above $40,000 on March 26 surprised bears as only 7% of bearish option bets for March 18 have moved above such a price level.
Bulls may have been fooled by the recent $45,000 resistance test on March 1, as their bets on Friday’s $760 million options expire all the way to $65,000.
Bitcoin options aggregate open interest for March 18. Source: CoinGlass
A broader look at the call-to-put ratio of 1.26 shows bigger stakes, as the open call (buy) interest is $425 million versus the $335 million put (sell) options. Nevertheless, since Bitcoin is now back above $40,000, most bearish bets are likely to become worthless.
For example, if Bitcoin’s price remains above $40,000 on March 18 at 8:00 AM UTC, only $24 million of those put (sell) options will be available. This difference arises because there is no point in selling Bitcoin for $40,000 if it trades above that level at expiration.
Bulls can cash in on a profit of $320 million
Below are the three most likely scenarios based on the current price action. The number of option contracts available on March 18 for call (bull) and put (bear) instruments varies depending on the expiration price. The imbalance favoring both sides makes up the theoretical gain:
Between $38,000 and $40,000: 1,700 calls versus 1,300 puts. Net income is split between the call (bull) and put (bear) instruments. Between $40,000 and $41,000: 3,200 calls versus 600 puts. The net income is $105 million in favor of bulls. Between $41,000 and $42,000: 4,200 calls vs. 300 putts. Bulls increase their profits to $160 million.
This rough estimate takes into account the call options used in bullish betting and the put options used exclusively in trades from neutral to bearish. Yet this oversimplification does not take into account more complex investment strategies.
For example, a trader could have sold a call option, essentially giving him negative exposure to Bitcoin above a specific price. But unfortunately there is no easy way to estimate this effect.
Related: Bitcoin Risks Final Bear Market Capitulation As Wealthy Investors Continue BTC Selling – Analyst
Bears Have Incentives To Suppress Bitcoin Price
Bitcoin bears must push the price below $40,000 on Friday to avoid a $105 million loss. On the other hand, bulls’ best-case scenario requires a push above $41,000 to increase their profits to $160 million.
Bitcoin bulls had leverage of $98 million on March 16, so there is less incentive to push the price up in the near term. With this said, bulls will likely try to defend $40,000 support until March 18 options expiration.
The views and opinions expressed here are solely those of the writer and do not necessarily reflect the views of Coin-Crypto. Every investment and trading move involves risks. You should do your own research when making a decision.