3 Reasons Why Bitcoin Bulls Are Well Positioned To Profit From This Week’s $4.2 Billion Option Expiry

Regulation remains a major concern for bitcoin bulls, especially after the Commodity Futures Trading Commission (CFTC) sued Binance for violating trading and derivatives laws. The regulator wants Binance to return trading profits, earnings, salaries, commissions, loans and fees received from US citizens, as well as pay civil penalties for the violations.

The rise in bitcoin price was also fueled by a change in sentiment for the riskier asset after US Federal Reserve Chairman Jerome Powell said that rate hikes are no longer a standard move to curb inflation. The central bank understood that the current situation “could result in tighter credit conditions for households and businesses, which in turn would impact economic outcomes.”

Fixed income investors earn more when interest rates rise, making it less attractive to buy stocks and commodities. By reversing the strategy and adding $339 billion in liabilities in two weeks, the Fed chose to contain the banking crisis, which could have caused inflation to spiral out of control.

Given the risk asset growth scenario, Bitcoin bulls could make up to $1.4 billion in profit during the monthly options expiration on Friday.

The Bitcoin Bears Were Completely Offended

The open interest for the option expiration on March 31 is $4.2 billion, but the actual figure will be lower as the bears expect a price level below $26,500. These traders were surprised when bitcoin gained 32% between March 12 and March 17.

Bitcoin options collect interest payable before March 31. Source: Coinglass

The call-to-put ratio of 1.34 reflects an imbalance between $2.4 billion call (buy) open interest and $1.8 billion put (sell) options. However, if the bitcoin price remains near $28,000 at 8:00 UTC on March 31, only $25 million of these put (sell) options will be available. This difference arises because the right to sell bitcoin at $26,000 or $27,000 is void if BTC later trades above that level.

Bulls target $29,000 for record $1.4 billion gains

Below are the four most likely scenarios based on the current price action. The number of option contracts available on March 31 for Call (bull) and Put (bear) instruments varies depending on the expiration price. The imbalance in favor of each side constitutes a theoretical advantage:

  • Between $25,000 and $26,000: 27,200 calls vs 12,700 puts. The net result is $360 million in favor of the Call (Bull) instruments.
  • Between $26,000 and $27,000: 32,300 calls vs 8,500 puts. The net result is $620 million in favor of the Call (Bull) instruments.
  • Between $27,000 and $28,000: 38,100 calls vs 3,000 puts. Bulls extend their gains to $1.2 billion.
  • Between $28,000 and $30,000: 48,300 calls vs 400 puts. Bulls dominate with $1.4 billion in gains.

This rough estimate takes into account call options used in bullish bets and put options used exclusively in neutral-to-bearish trades. Yet this oversimplification ignores more complex investment strategies.

For example, a trader may have sold a call option, effectively gaining downside risk for bitcoin above a certain price, but unfortunately there is no easy way to estimate this effect.

Connected: ‘Not bullish at all’ – 7% bitcoin price gain fails to convince traders

Bears’ best hope is based on regulatory FUD

Bitcoin bulls must push the price above $29,000 by March 31 to secure gains of a potential $1.4 billion. On the other hand, the bears’ best bet is more regulatory FUD on stablecoins or major crypto exchanges – which has so far been fruitless.

Bulls are well positioned for monthly BTC options expiring in March, given the bullish momentum created by the Fed’s inability to continue raising interest rates. Most likely, those gains will be used to consolidate further towards the $28,000 support, so the expected outcome is of particular concern to the bears.

Bitcoin (BTC) price has been hovering around $28,000 for the past ten days, but the cryptocurrency is up 70.5% year-to-date. As of March 17, bitcoin was trading below $25,000, which suggests that most of the bearish bets were placed at or below $26,500 for the $4.2 billion options expiration in March.

This article does not constitute investment advice or suggestion. Every investment and trading move involves risk and readers should do their own research when making decisions.

The views, opinions and opinions expressed here are solely those of the authors and do not reflect or represent the views and opinions of Cointelegraph.

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