Bitcoin bulls will defend $40K ahead of Friday’s $760 million options expiration

The Bitcoin price is struggling to stay over $40,000, but the March 18 options expiry could provide bulls with the $160 million profit they need to keep the positive momentum going.

Bitcoin (BTC) has followed a modestly climbing trend for the previous two months, bouncing off its support many times.

Even while this appears to be an encouraging sign, Bitcoin’s year-to-date performance is a dismal -14 percent. The Bloomberg Commodity Index (BCOM), on the other hand, increased by 2% during the same time period.

Crude oil, natural gas, gold, corn, and lean pigs all saw price improvements, which helped the broader commodity index. The supply curve was under pressure due to worsening macroeconomic conditions, which moved the equilibrium price to a higher level.

Furthermore, on March 15, the US Congress passed a $1.5 trillion budget bill that will finance the government through September. President Joe Biden’s signature on the bill avoids a government shutdown, but also puts more strain on the US national debt, which is now above $30.3 trillion.

Despite this, cryptocurrency traders are becoming increasingly anxious about the US Federal Reserve’s rate hikes, which are likely to continue through 2022 in order to keep inflation at bay.

Investors profited from risky assets, causing the US Dollar Index (DXY) to hit a new high of 99.2 on March 11, the highest level in 21 months. The indicator compares the strength of the dollar against a basket of leading foreign currencies.

The majority of bearish bets are below $40,000.

Only 7% of negative option bets for March 18 were put above this price level, therefore Bitcoin’s rally above $40,000 caught bears off guard on March 26.

Bulls may have been deceived by the recent $45,000 resistance test on March 1, as their bets for the $760 million March 18 options expiry had risen to $65,000.

A broader look using the 1.26 call-to-put ratio reveals more substantial wagers, with $425 million in call (buy) open interest vs $335 million in put (sell) options. However, now that Bitcoin has risen beyond $40,000, most negative bets are likely to be worthless.

For example, only $24 million worth of put (sell) options will be available if Bitcoin’s price remains above $40,000 at 8:00 a.m. UTC on March 18. This discrepancy arises because a right to sell Bitcoin at $40,000 has no value if it trades beyond that level upon expiration.

The Bulls may make a $320 million profit.

Based on the present price activity, the three most likely possibilities are listed below. The quantity of call (bull) and put (bear) options contracts available on March 18 fluctuates based on the expiry price. The theoretical profit is determined by the imbalance favouring either side:

  • 1,700 calls vs. 1,300 puts between $38,000 and $40,000. The call (bull) and put (bear) instruments are balanced in the end.
  • 3,200 calls vs. 600 puts between $40,000 and $41,000. Bulls are $105 million better off as a result of the net result.
  • 4,200 calls vs. 300 puts between $41,000 and $42,000. The bulls have increased their profits to $160 million.

This rough estimate takes into account call options in bullish wagers and put options in neutral-to-bearish transactions. Despite this, more complex investment methods are ignored by this simplicity.

A trader, for example, could have sold a call option to earn a negative exposure to Bitcoin above a certain price. However, there is no simple way to measure this effect.

Bears have a vested interest in keeping Bitcoin’s price low.

To prevent a $105 million loss, Bitcoin bears must push the price below $40,000 by March 18. The bulls’ best case scenario, on the other hand, demands a rise above $41,000 to extend their gains to $160 million.

On March 16, bitcoin bulls liquidated $98 million in leveraged long bets, so there’s less incentive to push the price higher in the immediate term. As a result, bulls will most likely defend the $40,000 support level until the March 18 options expiry.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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