Bitcoin (BTC) price surged 6.3% just two days after hitting $21,370 on Feb. 13, marking its lowest level in more than three weeks. The price recovery can be partly explained by the US CPI data for February 14th, which shows January inflation up 6.4% yoy.
As the US Federal Reserve continues to monitor the overheated economy, further rate hikes to curb inflation are the most likely scenario. The unintended consequence is the increased cost of government debt, creating a bullish environment for scarce assets such as commodities, stock markets and cryptocurrencies.
Bitcoin’s gain has all but wiped out the bears’ expectation of an options expiry below $21,500 on Feb. 17, leaving their bets unlikely to pay as the deadline nears.
Bitcoin investors’ main concern is the possibility of further regulatory repercussions after the US Securities and Exchange Commission ordered Kraken to halt its staking rewards program on Feb. 9 and cracked down on the stablecoin issuance of Binance USD (BUSD ) has taken place.
Even if the news flow remains negative, bulls can still benefit from the February 17 options expiry by keeping BTC price above $22,500, but the situation can easily reverse and favor bears.
The bears did not expect the $22,000 level to hold
The open interest for options expiration on Feb. 17 is $675 million, but the actual number will be lower as the bears expected price levels below $22,000. These traders got cocky after bitcoin traded below $21,500 on Feb. 13.
Bitcoin options aggregate open interest for February 17th. Source: CoinGlass
The call-to-put ratio of 1.12 reflects the imbalance between the $355 million call (buy) options and the $320 million put (put) options . If the price of Bitcoin stays near $22,700 at 8:00 UTC on February 17, only $24 million worth of these put options will be available. This difference arises because the right to sell Bitcoin at $21,000 or $22,000 is useless if BTC is trading above that level at expiry.
Bulls target $23,000 to lock in $155 million in profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on February 17 for call (bull) and put (bear) instruments varies by expiry price. The imbalance in favor of each side represents the theoretical gain:
- Between $21,000 and $22,000: 700 calls vs. 5,500 puts. The net result favors put (bear) instruments by $100 million.
- Between $22,000 and $22,500: 1,800 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
- Between $22,500 and $23,000: 3,800 calls vs. 1,100 puts. The net result favors call (bull) instruments by $60 million.
- Between $23,000 and $24,000: 6,900 calls vs. 200 puts. The net result favors call (bull) instruments by $155 million.
This rough estimate takes into account the call options used in bullish bets and the put options used exclusively in neutral to bearish trades. Nevertheless, this simplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a certain price, but unfortunately there is no easy way to gauge this effect.
Related: Bitcoin price stands at $23,000 despite US dollar strength hitting a 6-week high
Bears could benefit from the impact of regulation
Bitcoin bulls need to push the price above $23,000 on Feb. 17 to lock in a potential $155 million gain. On the other hand, the bears’ best-case scenario requires a 3.5% dump below $22,000 to maximize their gains.
Given the negative pressure from regulators, bears stand a good chance of turning the table and avoiding a loss of $60 million or more on Feb. 17.
More importantly, looking at a broader timeframe, the Fed has little room to slow the economy without spiraling out of control on debt repayments.
February 17th will be an interesting show of strength between the short-term impact of a hostile environment of crypto regulation versus Bitcoin’s long-term scarcity and the benefits of censorship resistance.
Bitcoin (BTC) price gained 6.3% just two days after hitting $21,370 on Feb. 13, its lowest level in more than three weeks. The price recovery can be partially explained by the US CPI data for February 14th, which showed annual inflation rising 6.4% in January.
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