Bitcoin bears are attempting to pin the BTC price below $23K before this month’s options expire
Bitcoin’s (BTC) price gain of 16% between February 13 and February 16 virtually extinguished the bears’ expectation of a monthly options expiration below $21,500. As a result of the abrupt rally, these bearish bets are unlikely to pay off, especially since the expiration date is February 24. However, bulls did not count on the strong price rejection at $25,200 on February 21, and this reduces their odds. to secure a $480 million profit in this month’s BTC options expiration.
Bitcoin investors’ primary concern is tighter monetary policy as the US Federal Reserve raises interest rates and shrinks its $8 trillion balance sheet. February 22nd from the last meeting of the Federal Open Market Committee showed that members agreed on the latest rate hike of 25 basis points 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 rate hike would give them a better chance of containing inflation. Bullard said:
“Let’s be sharp now, let’s get inflation under control in 2023.”
If confirmed, the increased interest rate would be negative for risk assets, including Bitcoin, as it draws more profitability from fixed income investments.
Even if the news flow remains negative, bulls could still make up to $480 million on Friday’s monthly options expiration. However, bears can still significantly improve the situation by pushing the BTC price below $23,000.
Bjørner did not expect Bitcoin to contain $22,000
The open interest for monthly options expiration on February 24 is $1.91 billion, but the actual number will be lower since they have expected prices below $23,000. Still, these traders were surprised when Bitcoin gained 13.5% between February 15th and February 16th.
The call-to-put ratio of 1.55 reflects the imbalance between $1.16 billion of call (buy) open interest and $750 million of put options. If Bitcoin’s price remains near $24,000 at 08:00 UTC on February 24, only $125 million worth of these put options will be available. This difference occurs because the right to sell Bitcoin at $22,000 or $23,000 is useless if BTC trades above that level at expiration.
The Bulls are targeting $23,000 to secure a $155 million profit
Below are the four most likely scenarios based on current price action. The number of option contracts available on 17 February for buy (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side amounts to these theoretical profits:
- Between $22,500 and $23,000: 12,500 calls vs. 10,700 putts. The net result favors the call (bull) instruments by $40 million.
- Between $23,000 and $24,000: 16,200 calls vs. 7,600 putts. The net result favors the call (bull) instruments by $200 million.
- Between $24,000 and $24,500: 21,100 calls vs. 5,200 putts. The Bulls increase their advantage to $385 million.
- Between $24,500 and $25,000: 23,200 calls vs. 3,600 putts. The Bulls dominate by earning $480 million.
This rough estimate considers the call options used in bullish plays and the put options exclusively in neutral-to-bearish trades. Yet this oversimplification ignores more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining inverse exposure to Bitcoin above a certain price, but unfortunately there is no easy way to estimate this effect.
Related: US lawmakers introduce bill aimed at limiting Fed’s authority on digital dollar
The Fed’s tightening policy is the bears’ best shot
Bitcoin bulls need to push the price above $24,500 on February 24 to secure a potential profit of $480 million. On the other hand, the bears’ best-case scenario requires a price dump of 3.5% below $23,000 to minimize their losses.
Considering the negative pressure from the Fed’s desire to weaken the economy and contain inflation, bears have good chances to improve the situation and settle with a loss of $40 million on February 24. This move may not be successful, but it is the bears’ only way out of multi-million losses on BTC monthly options expiration.
Looking at a broader time frame, investors still believe the Fed is destined to reverse current monetary policy in the second half of 2023 – possibly paving the way for a sustained rally ahead of the Bitcoin block reward halving in 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 conduct their own research when making a decision.
