Over the past two months, Bitcoin (BTC) has followed a slightly uptrend, bouncing off its support several times.
While this may sound positive, Bitcoin’s year-to-date performance remains a lackluster -14%. On the other hand, the Bloomberg Commodity Index (BCOM) gained 2% over the same period.
1-day bitcoin/US dollar candlestick chart. Source: Trading View
The broader commodity index was affected by higher prices for crude oil, natural gas, gold, corn and lean pigs. Deteriorating macroeconomic conditions put pressure on the supply curve, which in turn shifted the equilibrium price to a higher level.
What’s more, on March 15, the United States approved a $1.5 trillion spending bill that funds the government until September. President Joe Biden’s signing of the law prevents a government shutdown but further puts more pressure on the US national debt, which is now over $30.3 trillion.
However, crypto traders are increasingly concerned about the expected rate hikes by the US Federal Reserve throughout 2022 to contain inflationary pressures.
Investors profited from riskier assets, pushing the US Dollar Index (DXY) to its highest level in 21 months at 99.2 on March 11. The index measures the strength of the dollar against a basket of major foreign currencies.
Bearish bets are mostly below $40,000.
Bitcoin’s recovery above $40,000 on March 26 caught the bears by surprise as only 7% of bear option bets on March 18 were placed above that price level.
Bulls may have been fooled by the recent $45,000 resistance test on March 1 as their $760 million expiration March 18 option bets go up to $65,000.
Bitcoin options merge open interest on March 18th. Source: CoinGlass
A broader view using a call-to-put ratio of 1.26 shows larger stakes as $425 million of call (buy) open interest versus $335 million of put (sell) options. However, with bitcoin now back above $40,000, most of the bearish bets are likely to be worthless.
For example, if the price of Bitcoin stays above $40,000 at 8:00 AM UTC on March 18, only $24 million worth of puts (sells) will be available. This difference arises because the right to sell Bitcoin at $40,000 is worthless if it trades above that level at expiration.
Bulls could make a $320 million profit
Below are the three most likely scenarios based on the current price movement. The number of option contracts available on March 18 for call (bullish) and put (bearish) instruments varies depending on the expiration price. The imbalance in favor of each side is the theoretical profit:
- $38,000 to $40,000: 1700 calls versus 1300 puts. The net result is balanced between call (bullish) and put (bearish) instruments.
- $40,000 to $41,000: 3200 calls versus 600 puts. Net result in favor of the bulls by $105 million.
- $41,000 to $42,000: 4200 calls versus 300 puts. The bulls increase their profits to $160 million.
This rough estimate takes into account call options used in bullish bets and put options exclusively in neutral bear trades. However, this oversimplification ignores more complex investment strategies.
For example, a trader could sell a call option, effectively receiving a negative share of bitcoins above a certain price. But, unfortunately, there is no easy way to evaluate this effect.
Connected: Bitcoin risks ultimate ‘bear market capitulation’ as wealthy investors continue BTC sell-off – analyst
Bears Have Incentives to Suppress Bitcoin Price
Bitcoin Bears need to push the price below $40,000 on March 18 to avoid a $105 million loss. On the other hand, at best, a push above $41,000 is required for the bulls to boost their profits to $160 million.
Bitcoin bulls liquidated $98 million of leveraged long positions on March 16, so there is less incentive to push the price higher in the short term. With that said, the bulls are likely to try to defend the $40,000 support before the options expire on March 18.
The views and opinions expressed here are solely those of author and do not necessarily represent the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.