Bitcoin bulls for the March 3 expiration have priced most options contracts at $24,500 or higher. On Feb. 21, the bitcoin price briefly topped $25,200, up 18% in eight days. Unfortunately, the crypto industry is under increasing regulatory pressure, and although no effective measures have been announced yet, investors are still vigilant and reacting to the regulator’s comment policy.
For example, on Feb. 23, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said that “everything other than Bitcoin” is under the agency’s mandate. Gensler noted that most crypto projects “are securities because there is a pool of intermediaries, and the public projects profits against that pool.”
On March 1, two US Federal Reserve (Fed) officials reiterated the need to raise interest rates more aggressively to curb inflation. Comments from Minneapolis Fed President Neil Kashkari and Atlanta Fed President Raphael Bostic also dampened investor expectations for a monetary policy reversal in 2023.
A stricter stance on the macroeconomic environment and regulation of cryptocurrencies has caused investors to reconsider their exposure to cryptocurrencies. At the same time, the decline in bitcoin’s price has effectively wiped out bulls’ expectations for options at $24,500 or more that expire on March 3, so their bets are unlikely to pay off when the deadline comes close. .
Bulls ‘pulled’ by negative comments on regulations
Open interest (OI) for options expiring on March 3 was $710 million, but the actual figure will be higher as bulls became overconfident after Bitcoin traded above $25,000 on Monday, February 21. Low.
Total Bitcoin Options Open Interest Expiring March 3 | Source: CoinGlass
The put ratio of 1.12 reflects an imbalance between $400 million in calls and $310 million in puts. However, the expected outcome of active OI may be much lower.
For example, if bitcoin prices were to sustain near $23,600 at 3pm on March 3, only $50 million of call options would be available. This arbitrage is because the right to buy Bitcoin for $24,000 or $25,000 is useless if BTC trades below that level at expiration.
Bears set trap below $23,000
Below are the 4 most likely scenarios based on current price action. The number of call and put options contracts available for March 3 varies by expiration price. Which side of the imbalance will create a theoretical profit for that side:
– From $22,000 to $22,500: 700 calls and 6,200 puts. The end result was in favor of $120 million in put options (put options).
– From $22,500 to $23,000: 1,000 calls and 4,800 puts. The end result was in favor of $85 million in puts (puts).
– From $23,000 to $24,000: 2,100 calls and 1,800 puts. The end result is a balance between bulls and bears.
From $24,000 to $25,000: 4,900 calls and 400 puts. The end result favored bullish instruments (longs) at $110 million.
This rough estimate takes into account calls used in both bullish and neutral to bearish trade-specific puts. Even so, this oversimplified calculation ignores more complex investment strategies.
For example, a trader may sell call options to have negative exposure to Bitcoin above a certain price, but unfortunately there is no easy way to estimate this impact.
Could Weak US Mortgage Applications Benefit Bitcoin Bulls?
Bitcoin bulls would have to push the price above $24,000 on March 3 for a potential profit of $110 million. However, data released by the Mortgage Bankers Association on March 1 may turn in favor of BTC. Weekly mortgage applications in 2022 are down 44% year-over-year, a 28-year low.
Bears could push BTC below $23,000 and absorb $85 million when weekly options expire on March 3, given the negative pressure from regulators and investors on the next Fed decision on March 22. However, there is still hope for Bitcoin bulls, depending on how traditional markets react to weak mortgage applications.
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As reported by Cointelegraph