Bitcoin (BTC) bulls jumped in to defend the $40,000 level after a devastating retest of the $38,000 support on March 7. month on March 2.
Bitcoin’s March 9 price rally has been partially attributed to this week’s expected inflation data report in the United States. Analysts expect another 40-year high as the Consumer Price Index (CPI) climbs 7.9% year on year.
In addition, a statement from US Treasury Secretary Janet Yellen on President Biden’s executive order over digital assets was somewhat milder than expected. Though it has been removed from the website, the injunction will apparently call for “a coordinated and comprehensive approach to digital asset policy”.
The Commodities Rally Heralded Bitcoin’s Rise
Since the Bloomberg Commodities Index (BCOM) hit a record high of 134 on March 8, Bitcoin’s recent strength should come as no surprise. Despite an adjustment to 129, BCOM gains accumulated in 30 days remain at 18.5%, according to Market overview†
According to the open interest on the options expiration on Friday, Bitcoin bulls placed heavy bets between $44,000 and $48,000. These levels may seem optimistic right now, but Bitcoin tested this level eight days ago.
Bitcoin options aggregate open interest for March 11. Source: CoinGlass
A broader view uses the call-to-put ratio and shows a 40% advantage over Bitcoin bulls, as the $460 million call (buy) instruments have a larger open interest than the put (sell) ) options of $330 million. However, the 1.40 call-to-put indicator is deceptive as most bullish bets become worthless.
For example, if the price of Bitcoin remains below $43,000 on March 11 at 8:00 AM UTC, there will be only $190 million worth of those call (buy) options available. This effect occurs because there is no value in the right to buy Bitcoin for $44,000 if it trades below that level.
Bulls could make $140 million for $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 bulls (call) and bear (put) instruments varies depending on the expiration price. The imbalance favoring both sides makes up the theoretical gain:
Between $40,000 and $42,000: 2,600 calls versus 2,100 puts. Net income is split between call (bull) and put (bear) options. Between $42,000 and $43,000: 4,500 calls versus 1,150 puts. The net income is $140 million in favor of bulls. Between $43,000 and $44,000: 5,100 calls vs. 700 putts. Net income favors call (bull) instruments by $190 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. Unfortunately, there is no easy way to estimate this effect.
Bears need a BTC price below 42,000 to balance the scales
Bitcoin bulls need to have $42,000 to make a profit of $140 million on March 11. In addition, a price increase of just 2% from the current level of $42,200 is enough for Bitcoin bulls to make a profit of $190 million when the options expire on Friday.
Bears will struggle to push the price down, given the positive sentiment from near-term inflation expectations and reduced pressure from regulators. Currently, options market data favors call (buy) options.
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.