Bitcoin’s (BTC) 16% price gain between February 13-16 all but extinguished the bears’ expectation of a monthly options expiration below $21,500. As a result of the sharp rally, these bearish bets are unlikely to pay off, especially since expiration occurs on February 24. However, the bulls were not counting on the strong rejection of the price of $25,200 on February 21 and this reduces their chances of winning. securing a $480 million profit on BTC options expiration this month.
The main concern for Bitcoin investors is tighter monetary policy, as the US Federal Reserve (FED) raises interest rates and reduces its $8 trillion balance sheet. Minutes from February 22 of the last meeting of the Federal Open Market Committee (FOMC) showed that members were in agreement on the most recent 25bp rate hike and that the Fed is willing to continue raising rates as long as deemed necessary.
St. Louis Fed President James Bullard told CNBC on February 22 that a more aggressive interest rate hike would give them a better chance of containing inflation. Bullard said,
“Let’s be sharp now, let’s control inflation in 2023.”
If confirmed, the interest rate pace increase would be a negative for risky assets including Bitcoin as it generates more returns for fixed income investments.
Even if the news flow remains negative, bulls can still take profits of up to $480 million in the monthly options expiration on Friday. However, the bears can still significantly improve their situation by pushing the price of BTC below $23,000.
The bears did not expect Bitcoin to be at $22,000
Open interest for the February 24 monthly options expiry is $1.91 billion, but the actual figure will be lower as expected prices are below $23,000. However, these traders were surprised when Bitcoin gained 13.5% on February 15-16.
The call-to-put ratio of 1.55 reflects the imbalance between the call open interest of $1.16 billion and the put options of $750 million. If the Bitcoin price remains near $24,000 at 8:00 am UTC on February 24, only $125 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $22,000 or $23,000 is worthless if BTC trades above that level at expiration.
Bulls target $23,000 to secure $155 million profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on February 17 for call (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical benefit:
- Between $22,500 and $23,000: 12,500 calls against 10,700 put options. The net result favors the call instruments (bull) by $40 million.
- Between $23,000 and $24,000: 16,200 calls against 7,600 put options. The net result favors the call instruments (bull) by $200 million.
- Between $24,000 and $24,500: 21,100 calls against 5,200 put options. Bulls increase their lead to $385 million.
- Between $24,500 and $25,000: 23,200 calls against 3,600 put options. The bulls dominate with a profit of $480 million.
This crude estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this simplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining reverse exposure to Bitcoin above a specified price, but unfortunately there is no easy way to estimate this effect.
Related: US Lawmaker Introduces Bill Aimed At Limiting Fed Authority Over Digital Dollar
Fed tightening policy is bears’ best chance
Bitcoin bulls need to push the price above $24,500 on February 24 to lock in a potential gain of $480 million. On the other hand, the bears’ best-case scenario requires a 3.5% price shock below $23,000 to minimize their losses.
Considering the negative pressure of the Fed’s desire to weaken the economy and contain inflation, the bears have a good chance to improve their situation and settle with a loss of $40 million on February 24. This move might not be successful, but it is the only way for the bears. of multi-million dollar losses on the expiration of monthly BTC options.
Looking at a broader time frame, investors still believe the Fed is set to reverse current monetary policy in the second half of 2023, possibly paving the way for a sustainable rally ahead of the block reward halving. of Bitcoin of April 2024.
The views, thoughts, and opinions expressed herein 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.
