Over the past two months, Bitcoin (BTC) has respected the formation of rising triangles and has repeatedly bounced off its support and resistance lines. This may sound positive, but prices are still down 11% year-on-year. By comparison, the Bloomberg Commodity Index (BCOM) rose 29% over the same period.
Bitcoin / USD daily chart on FTX. Source: TradingView
The broader commodity index has benefited from higher prices for crude oil, natural gas, corn, wheat and lean pork. On the other hand, the market capitalization of cryptocurrencies could not break the resistance level of $ 2 trillion and is now $ 1.98 trillion.
In addition to 40 years of record high inflation in the United States, a $ 1.5 trillion spending bill was approved on March 15, enough to fund the government until September. Deterioration of macroeconomic conditions weighed on supply curves, which in turn pushed commodity prices even higher.
For these reasons, crypto traders are increasingly concerned about the Federal Reserve’s rate hike, which is expected to curb inflationary pressures throughout 2022.
When the global economy falls into recession, investors seek protection of US Treasuries and the US dollar itself, moving away from risk-on asset classes such as cryptocurrencies.
Bulls bet over $ 100,000
The open interest for the option expired on March 25 in Bitcoin is $ 3.34 billion, but the actual number is much lower because the Bulls were overly optimistic.
These traders could have been fooled by a short pop on March 2nd to $ 45,000 as their bets on the March 25th option expiration date exceeded $ 100,000.
Even the recent rise in Bitcoin over $ 42,000 was surprising, as only 16% of the bearish option bets on March 25 exceeded this price level.
Bitcoin option aggregates open interest on March 25th. Source: CoinGlass
A call-to-put ratio of 1.75 represents a larger bet as the open position for a call (buy) is $ 2.13 billion for a $ 1.21 billion put (sell) option. Nonetheless, Bitcoin is close to $ 42,000, so most bearish bets can be worthless.
For example, if Bitcoin’s price remains above $ 42,000 at 8am UTC on March 25, only the $ 192 million worth of these put (sale) options will be available. This difference occurs because if Bitcoin is traded above that level at the time of expiration, the right to sell Bitcoin for $ 40,000 will not be used.
Bulls Aims for $ 280 Million Profit
Below are the three most likely scenarios based on current price behavior. The number of option contracts available for Call (Bull) and Put (Bear) products on March 25 depends on the maturity price. Imbalances in favor of each side constitute a theoretical benefit.
- Between $ 39,000 and $ 42,000: 6,300 calls vs. 6,300 puts. The end result is balanced between call (bull) and put (bear) instruments.
- Between $ 42,000 and $ 44,000: 8,700 calls vs. 4,600 puts. The end result favors a $ 175 million bull.
- Between $ 44,000 and $ 45,000: 10,600 calls vs. 4,300 puts. The Bulls push their profits to $ 280 million.
This rough estimate takes into account put options used for bear bets and call options used only for neutral to bullish trading. Still, this oversimplification ignores more complex investment strategies.
For example, traders can sell put options to effectively gain positive exposure to Bitcoin above a certain price, but unfortunately there is no easy way to estimate this effect.
Related: Terra could repeat $ 125 million BTC purchases that ignited Bitcoin execution at $ 43.3K
Bears will want to fix BTC below $ 42,000
Bitcoin Bear needs to put pressure on prices below $ 42,000 on March 25 to avoid a loss of $ 175 million. The Bulls best-case scenario, on the other hand, requires a push of over $ 44,000 to increase profits to $ 280 million.
Bitcoin Bear liquidated a $ 150 million leveraged short position on March 22, so we need to reduce the margin needed to lower the price of Bitcoin. That said, the Bulls will undoubtedly try to defend $ 42,000 until the March 25 option expires.
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