In the last two months, Bitcoin (BTC) has respected an ascending triangle formation, bouncing multiple times from its support and resistance lines. While this may sound positive, the price is still down 11% year-to-date. For comparison, the Bloomberg Commodity Index (BCOM) gained 29% in the same period.
The general commodity index benefited from increases in the prices of crude oil, natural gas, corn, wheat and lean pork. Meanwhile, the total cryptocurrency market capitalization failed to break the $2 trillion resistance level and currently stands at $1.98 trillion.
In addition to the 40-year record inflation in the United States, a $1.5 trillion spending bill it was approved on March 15, enough to finance the government until September. Worsening macroeconomic conditions put pressure on the supply curve, which, in turn, pushed commodity prices higher.
For these reasons, cryptocurrency traders are increasingly concerned about the US Federal Reserve rate hikes expected. throughout 2022 to contain inflationary pressure.
If global economies slip into recession, investors will seek protection in US Treasuries and the US dollar itself, away from risky asset classes like cryptocurrencies.
The Bulls placed their bets at $100,000 and up
The open interest for the March 25 options expiry in Bitcoin is $3.34 billion, but the actual figure will be much lower as the bulls were too bullish.
These traders could have been misled by the short-lived breakout to $45,000 on March 2, as their bets for the March 25 options expiration are spread beyond $100,000.
Even Bitcoin's recent rally above $42,000 caught bears by surprise because only 16% of bear option bets for March 25 were placed above this price level.
The call-to-put ratio of 1.75 shows larger bets because open interest on calls is $2.13 billion versus puts at $1.21 billion. However, as Bitcoin nears $42,000, most bearish bets will likely lose their value.
For example, if the price of Bitcoin sustains above $42,000 at 8:00 am UTC on March 25, only $192 million of these 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 target a $280 million profit
Below are the three most likely scenarios based on the current price action. The number of option contracts available on March 25 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 $39,000 and $42,000: 6,300 calls vs. 6,300 puts. The net result is balanced between call (bull) and put (bear) instruments.
- Between $42,000 and $44,000: 8,700 calls vs. 4,600 put options. The net result favors the bulls by $175 million.
- Between $44,000 and $45,000: 10,600 calls vs. 4,300 put options. The bulls increase their profit to $280 million.
This crude estimate considers put options used on bearish bets and call options exclusively on neutral to bullish trades. Still, this simplification ignores more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there is no easy way to estimate this effect.
Related: Terra may be about to repeat the $125M BTC purchase that sparked Bitcoin's run to $43.3K
The bears will want to pin BTC below $42,000
Bitcoin bears need to push the price below $42,000 on March 25 to avoid a $175 million loss. On the other hand, the bulls' best-case scenario calls for a push above $44,000 to push their gains to $280 million.
Bitcoin bears had $150 million leveraged short positions liquidated on March 22, so they should have less margin required to drive down the price of Bitcoin. With that being said, the bulls will no doubt try to defend $42,000 until the options expiration on March 25.
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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