In the last two months, Bitcoin (BTC) has respected a slightly uptrend, bouncing multiple times from its support.
While that may sound positive, Bitcoin's year-to-date performance is still a lackluster and negative 14%. On the other hand, the Bloomberg Commodity Index (BCOM) gained 2% in the same period.
The general commodity index benefited from increases in the prices of crude oil, natural gas, gold, corn and lean hogs. The worsening of macroeconomic conditions put pressure on the supply curve, which, in turn, shifted the equilibrium price higher.
In addition, the United States passed a $1.5 trillion spending bill on March 15 that finances the government until September. President Joe Biden's signing of the legislation averts a government shutdown but puts further pressure on the US national debt, which now exceeds $30.3 trillion.
Still, crypto traders are increasingly worried on US Federal Reserve rate hikes planned throughout 2022 to contain inflationary pressure.
Investors took profits from riskier assets, causing the US Dollar Index (DXY) to hit 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.
Bear bets are mostly below $40,000
Bitcoinโs rally above $40,000 on March 26 caught bears by surprise as only 7% of bear option bets for March 18 were placed above that price level.
The bulls might have been misled by the recent $45,000 resistance test on March 1, as their bets for Friday's $760M options expiration run as high as $65,000.
A broader view using the call-to-put ratio of 1.26 shows larger bets, as open interest on calls (buys) stands at $425m versus $335m on puts. However, with Bitcoin now back above $40,000, most bearish bets will likely lose their value.
For example, if the price of Bitcoin sustains above $40,000 at 8:00 am UTC on March 18, only $24 million of those put options will be available. This difference occurs because the right to sell Bitcoin at $40,000 if it trades above that level at expiration is of no use.
Bulls could pocket a $320 million profit
Below are the three most likely scenarios based on the current price action. The number of option contracts available on March 18 for call (bull) and put (bear) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical profit:
- Between $38,000 and $40,000: 1,700 calls vs. 1,300 put options. The net result is balanced between call (bull) and put (bear) instruments.
- Between $40,000 and $41,000: 3,200 calls versus 600 put options. The net result favors the bulls by $105 million.
- Between $41,000 and $42,000: 4,200 calls vs. 300 puts. The bulls increase their earnings to $160 million.
This raw estimate considers call options used on bull bets and put options exclusively on neutral to bear trades. Still, this simplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price. But unfortunately, there is no easy way to estimate this effect.
Related: Bitcoin Risks Final '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 Friday to avoid a $105 million loss. On the other hand, the bulls' best-case scenario calls for a push above $41,000 to push their gains to $160 million.
Bitcoin bulls had $98 million long leveraged positions liquidated on March 16, so there is less incentive to raise the price in the short term. That being said, the bulls are likely to attempt to defend the $40,000 support until the options expiration on March 18.
The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.
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