Bitcoin (BTC) bulls have placed most of their options at $24,500 and above for the March 3 options expiration, and given the recent uptrend seen in BTC, who can blame them? On February 21, the price of Bitcoin briefly traded above $25,200, reflecting an 8-day gain of 18%. Unfortunately, regulatory pressure on the cryptocurrency sector has increased and despite the fact that no effective measures have been announced, investors are still cautious and reactive to comments from policymakers.
For example, on February 23, the chairman of the US Securities and Exchange Commission, Gary Gensler, stated that “everything other than Bitcoin” falls under the jurisdiction of the agency. Gensler noted that most crypto projects “are securities because there is a pool in the middle and the public anticipates earnings based on that pool.”
Comments on March 1 from two US Federal Reserve officials. reiterated the need for even more aggressive interest rate increases to curb inflation. Comments from Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic also lowered investor expectations for a monetary policy change in 2023.
The stricter stance of the macroeconomic and crypto regulatory environment caused investors to reconsider their exposure to cryptocurrencies. However, Bitcoin’s price plunge all but extinguished bulls’ expectation of an options expiration of $24,500 or higher on March 3, so their bets are unlikely to pay off as the date approaches. limit.
Bulls were “pulled off the rug” for negative regulatory comments
Open interest for the March 3 options expiration is $710 million, but the actual figure will be lower as bulls got too confident after Bitcoin traded above $25,000 on February 21.
The call-to-put ratio of 1.12 reflects the imbalance between the $400 million call open interest and the $310 million put options. However, the expected result is probably much lower relative to active open interest.
For example, if the Bitcoin price stays near $23,600 at 8:00 am UTC on March 3, only $50 million worth of these call options will be available. This difference occurs because the right to buy Bitcoin at $24,000 or $25,000 is worthless if BTC trades below that level at expiration.
The bears have set their trap below $23,000
Below are the four most likely scenarios based on current price action. The number of option contracts available on March 3 for call (bull) and put (bear) instruments varies according to the expiration price. The imbalance in favor of each side constitutes the theoretical benefit:
- Between $22,000 and $22,500: 700 calls against 6,200 put options. The net result favors put (bear) instruments by $120 million.
- Between $22,500 and $23,000: 1,000 calls vs. 4,800 put options. The net result favors put (bear) instruments by $85 million.
- Between $23,000 and $24,000: 2,100 calls vs. 1,800 put options. The net result is balanced between bulls and bears.
- Between $24,000 and $25,000: 4,900 calls against 400 put options. The net result favors the call instruments (bull) by $110 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 negative exposure to Bitcoin above a specified price, but unfortunately, there is no easy way to estimate this effect.
Related: Bitcoin’s least volatile month? BTC Price Ends February Up 0.03%
Could Weak US Mortgage Applications Benefit BTC Bulls?
Bitcoin bulls need to push the price above $24,000 on March 3 to lock in a potential $110 million gain. However, data from a Mortgage Bankers Association announcement on March 1 could turn the tide favorably for BTC. The weekly volume of mortgage applications refused by 44% compared to the same period in 2022, reaching the lowest level in 28 years.
Considering the negative pressure from regulators and investors awaiting the next Fed decision on March 22, the bears have a good chance of pushing BTC below $23,000 and taking a profit of $85 million at expiration. of the weekly options of March 3. Still, there is hope for Bitcoin bulls depending on how traditional markets react to bearish mortgage application data.
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.
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.
