After a disastrous retest at $38,000 on March 7, Bitcoin (BTC), bulls rallied to defend the $40,000 mark. After BTC failed to surpass $44,500 on March 2, the momentum and confidence that had been building earlier in the month was abruptly shattered.
Partially, the Bitcoin price rally of March 9 was due to this week’s anticipated United States inflation data. Analysts anticipate another 40-year high in the consumer price index (CPI), which will reach 7.9% annual gains.
A statement by Janet Yellen, U.S. Treasury Secretary, regarding President Biden’s executive order concerning digital assets was also somewhat less than expected. The U.S. Department of the Treasury’s order on digital assets policy will be deleted, presumably because it was released too early.
The commodities rally was a sign of Bitcoin’s rise
Bitcoin’s recent strength shouldn’t be surprising, considering that the Bloomberg Commodities Index (BCOM), reached an all-time high at 134 on March 8. MarketWatch reports that the BCOM gains of 18.5% accumulated over 30 days have corrected to 129.
The open interest at Friday’s expiry indicated that Bitcoin bulls had placed large bets of between $44,000 to $48,000. Although these levels may seem optimistic at the moment, Bitcoin tested them eight days ago.
For March 11, Bitcoin options have an aggregated open interest of $11 million Source: CoinGlass
The call-to-put ratio is used to show a wider view. It shows that Bitcoin bulls have a 40% advantage, with the $460million call (buy) instruments having a greater open interest than the $330million put (sell). The 1.40 call-to–put indicator is misleading because most bullish wagers will be worthless.
If Bitcoin’s price is below $43,000 at 8:01 UTC on March 11, then only $190 million worth call (buy) options would be available. This is because the right to purchase Bitcoin at $44,000 has no value if it is trading below that level.
Bulls could take home $140 million for $42,000
Based on current price action, the following are the most likely scenarios. The expiry price will determine the number of options contracts that are available for bulls (call) or bears (put) instruments on March 11. The theoretical profit is the result of an imbalance in favor of each side.
2,600 calls for between $40,000 and $42,000 vs. 2,100 put. The net result is balanced between put (bull) options and call (bull). Between $42,000 and $43,000, 4,500 calls vs. 1,150 lets. Bulls are favored by $140 Million. Between $43,000 and $44,000, 5,100 calls vs. 700 put. The net result favors bull instruments by $190 millions.
This rough estimate includes the bullish options and neutral-to bearish options. This oversimplification ignores complex investment strategies.
A trader might have sold a call option to gain negative exposure to Bitcoin above a certain price. This effect is difficult to quantify.
To balance the scales, bears require a BTC price lower than $42,000
To make a $140million profit on March 11, Bitcoin bulls must hold $42,000 Bitcoin bulls need to hold $42,000 in order to make a $140 million profit on March 11.
The short-term positive sentiment about inflation expectations and lower pressure from regulators will make it difficult for bears to suppress the price. Options markets data currently favor call (buy), options.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.