Bitcoin bulls aim to hold this week’s BTC gains leading into Friday’s $675M options expiry
As long as the US Federal Reserve (Fed) continues to monitor the overheated economy, the most likely scenario is a further increase in interest rates to curb inflation. The unintended consequence is an elevated cost of government debt, creating a bullish environment for scarce assets such as commodities, the stock market, and cryptocurrencies.
Bitcoin’s price gains have all but come to a halt, so options under $21,500 are expected to expire on Feb. 17, so their bets are unlikely to pay off as the deadline approaches.
Bitcoin investors are most concerned about the possibility of further regulatory action after the US Securities and Exchange Commission suspended the Kraken staking reward program on February 9, as well as the ban on the issuance of Binance USD (BUSD) stablecoin on February 13. .
Even if the news flow remains negative, the bulls can still profit from the expiration of the options on Friday, February 17, keeping the price of BTC above $22,500, but the situation could easily turn in favor of the bears.
Bears Didn’t Expect $22,000 Level to Hold
Open interest in options with an expiration of February 17 is $675 million, but the actual figure will be lower as the bears were expecting prices below $22,000. These traders became overconfident after bitcoin traded below $21,500 on Feb. 13.
The call-to-put ratio of 1.12 reflects the imbalance between $355 million of calls (buy) and $320 million of puts. If the price of Bitcoin remains around $22,700 at 8:00 AM UTC on February 17th, these put options will only be available in the amount of $24 million. This difference arises because the right to sell Bitcoin at $21,000 or $22,000 is worthless if BTC trades above that level at expiration.
The bulls are aiming for $23,000 to make a profit of $155 million.
Below are the four most likely scenarios based on the current price movement. The number of option contracts available on February 17 for call (bullish) and put (bearish) instruments varies depending on the expiration price. The imbalance in favor of each side is the theoretical profit:
- $21,000 to $22,000: 700 calls versus 5500 puts. Net result in favor of $100 million puts (bearish).
- $22,000 to $22,500: 1800 calls versus 1500 puts. The net result is balanced between bears and bulls.
- $22,500 to $23,000: 3800 calls versus 1100 puts. Net result in favor of $60 million calls (bullish).
- $23,000 to $24,000: 6900 calls versus 200 puts. Net result in favor of $155 million calls (bullish).
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 gaining negative exposure to bitcoin above a certain price, but unfortunately there is no easy way to measure this effect.
Bitcoin Price Closes To $23K Despite US Dollar Strength Hits 6-Week High
Bears can benefit from the impact of regulation
Bitcoin bulls need to push the price above $23,000 on Feb 17 to make a potential profit of $155 million. On the other hand, at best, bears need a 3.5% reset below $22,000 to maximize their gains.
Given the negative pressure from regulators, the bears have a good chance of turning the table and avoiding losses of $60 million or more on Feb. 17.
More importantly, looking at a broader time frame, there is little scope for the Fed to slow down the economy without driving interest payments on the debt out of control.
Friday will be an interesting show of strength between the short-term impact of a hostile cryptocurrency regulatory environment and the long-term benefits of Bitcoin scarcity and censorship resistance.
The price of Bitcoin (BTC) surged 6.3% in just two days after hitting $21,370 on Feb. 13, the lowest level in more than three weeks. The recovery in prices can be partly attributed to the February 14 US CPI data showing an annualized inflation rate of 6.4% in January.
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Credit : cointelegraph.com