of bitcoins (BTC) The 17.5% rally between March 16 and 22 surprised options traders who were betting on price levels below $26,000. The move was as investors sought protection against persistent inflation and the ongoing banking crisis.
Bitcoin bulls have been paying close attention to the negative effects of near-zero interest rates between April 2020 and April 2022, with some using the information to profit from the $1.2 billion worth of BTC options set to expire on March 24th.
Resilient inflation and improving housing markets
According to the official Consumer Price Index (CPI) released on March 22, inflation in England unexpectedly rose to 10.4% in February due to rising food prices. This outcome is likely to prompt the Bank of England to raise interest rates on March 23, thus increasing the likelihood of a recession. A higher cost of capital is bad for businesses and families, but it's the only way to stop rising consumer prices.
Meanwhile, existing home sales in the United States increase 14.5% in February, after the first annual price drop in more than a decade. The figures published on March 21 reflect the decrease in mortgage rates as a result of the greater demand for government bonds. In addition, the increase in sales suggests that the real estate market has reached a price floor.
Investors frantically sought protection against currency debasement as governments were forced to inject capital to avoid contagion from the banking sector. For example, the five-year US Treasury yield declined from 4.34% on March 8 to 3.6% on March 22, indicating increased demand for fixed income instruments.
Is the new world one where the prices of all assets are rising?
Consumer prices continue to rise even as the S&P 500 retook the 4,000 mark. Demand from the property market is rising and gold gained 7.8% in 2023. Every asset with a chance to benefit from inflation is rising, a typical sign of fiat currency debasement.
The move is not consistent with the macroeconomic scenario in which banks required emergency bailouts and large corporations were forced to lay off thousands of employees due to declining sales prospects. Therefore, a part of Bitcoin's recent gains towards $28,000 is due to the weakening of the US dollar.
If recession fears continue to negatively impact risk markets, Bitcoin may struggle to maintain the price levels needed for bulls to earn $380 million or more before March 24, when weekly options expire.
The data also shows that bears were caught off guard when Bitcoin topped $26,000.
The weekly BTC options expiration has an open interest of $1.2 billion, but the actual figure will be lower because bears have concentrated their bets on Bitcoin trading below $26,000.
The call-to-put ratio of 1.17 reflects the difference in open interest between the $675 million call options and the $575 million put options. The bears were caught off guard on March 17 when the price of Bitcoin broke above $26,000, so the likely outcome will be much lower than anticipated.
For example, if the price of Bitcoin stays near $27,700 on March 24 at 8:00 am UTC, there will only be $21 million in put options. This distinction arises due to the fact that the right to sell Bitcoin at $26,000 or $27,000 is void if BTC trades above that price on the expiration date.
Related: Bitcoin Price Wobbles as Fed Says Rate Hikes May Not Be 'Appropriate'
Most likely outcomes favor bulls by a wide margin
Below are the four most likely scenarios based on current price action. The number of option contracts available on March 24 for buy (call) and sell (put) instruments varies according to the expiration price. The imbalance in favor of each side constitutes the theoretical benefit:
- Between $25,000 and $26,000: 7,400 calls vs. 5,500 put options. The net result favors call instruments (purchase) for $50 million.
- Between $26,000 and $27,000: 9,100 calls against 3,700 put options. The net result favors call instruments by $140 million.
- Between $27,000 and $28,000: 12,700 calls against 800 put options. The Bulls increase their lead to $330 million.
- Between $28,000 and $29,000: 14,300 calls against 20 put options. The Bulls' lead increases to $405 million.
This rough estimate considers only call options on bullish bets and put options on neutral to bearish trades. However, this simplification excludes more complex investment strategies. A trader, for example, could have sold a put option, effectively gaining positive exposure to Bitcoin above a given price, but this effect is difficult to estimate.
The bears can only cut their losses, so they are likely to throw in the towel and focus on the $3.8 billion monthly expiration on March 31. However, based on weekly options data, the bulls are in an excellent position to take profits of at least $330 million.
The views, thoughts and opinions expressed here are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
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