Monday, June 5, 2023
  • Bitcoin volatility likely to ensue as options worth US$4 billion expired on March 31.
  • Given the risk asset accretive situation, Bitcoin bulls can profit up to $1.4 billion in Friday’s monthly options expiry.
  • Bitcoin’s increase in price has been fueled by a shift in sentiment toward risk assets

The primary worry for Bitcoin bulls remains regulation. Particularly after the Commodity Futures Trading Commission (CFTC) sued Binance for trading and derivatives law violations. Binance must repay trading profits, revenues, salaries, commissions, loans, and fees. They are obtained from US citizens, as well as pay civil penalties for the breaches, according to the authorities.

Bitcoin’s increase in price has been fueled by a shift in sentiment toward risk assets. This was following comments by US Federal Reserve Chair Jerome Powell that interest rate hikes are no longer the usual policy to combat inflation. The central bank recognized that the present situation would “likely result in tighter credit conditions for households and businesses, affecting economic outcomes.”

READ: Bitcoin bull market run ignited by pressure on Federal Reserve

When interest rates rise, fixed-income investors make more, making stocks and commodities less appealing. As a result, the Fed decided to contain the banking crisis, which could cause inflation to spiral out of control, by reversing its plan and adding $339 billion in liabilities in two weeks.

Given the risk asset accretive situation, Bitcoin bulls can profit up to $1.4 billion in Friday’s monthly options expiry.

Bitcoin Bears were caught off-guard

The March 31 options expiry has $4.2 billion in open interest, but the actual number will be lower. This is because Bitcoin bears were expecting price levels below $26,500. These dealers were taken aback when Bitcoin increased 32% between March 12 and March 17.

The 1.34 call-to-put ratio shows the $2.4 billion in call (buy) open interest versus the $1.8 billion in put (sell) options. However, if the price of Bitcoin stays near $28,000 at 8:00 a.m. UTC on March 31, only $25 million in put (sell) options will be available. This distinction arises because the right to sell Bitcoin at $26,000 or $27,000 is rendered null and void if BTC trades above that level on expiration.

Bitcoin Bulls aiming for $29,000

Based on the current price action, the four most probable scenarios are as follows. The number of calls (bull) and put (bear) options contracts available on March 31 varies based on the expiry price. The theoretical profit is the disparity favouring each side:

  • Between $25,000 and $26,00; there are 27,200 calls and 12,700 options. The net outcome is $360 million in favour of call (bull) instruments.
  • Between $26,000 and $27,000: 32,300 calls vs. 8,500 puts. The net result favours the call (bull) instruments by $620 million.
  • Between $27,000 and $28,000: 38,100 calls vs. 3,000 puts. Bulls increase their advantage to $1.2 billion.
  • Between $28,000 and $30,000: 48,300 calls vs. 400 puts. Bulls dominate by profiting $1.4 billion.

This rough approximation takes into account only call options in bullish bets and put options in neutral-to-bearish trades. Nonetheless, this oversimplification excludes more complicated investment strategies.

A trader, for example, could have sold a call option, essentially gaining negative exposure to Bitcoin above a certain price, but there is no easy method to estimate this effect.

ALSO READ: Bitcoin Copies: The different types of bitcoin forks

Bitcoin Bears hope relies on regulatory FUD

To achieve a potential $1.4 billion profit, Bitcoin bulls must push the price above $29,000. Bear’s best shot, on the other hand, has been more regulatory FUD about stablecoins or big crypto exchanges, which has so far proven ineffective.

Given the bullish momentum generated by the Fed’s failure to raise interest rates further, Bitcoin bulls are well positioned for the March BTC monthly options expiry. Those profits are most likely going to be used to reinforce the $28,000 support, so the expected result is particularly concerning for bears.

Bitcoin has been trading around $28,000 for the past ten days, but it has gained 70.5% year to date. Bitcoin was trading below $25,000 until March 17, which explains why the majority of bearish bets for March’s $4.2 billion options expiry were made at $26,500 or lower.

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