Bitcoin (BTC) bulls jumped to defend the $40,000 level after a devastating retest of the $38,000 support on March 7. month March 2.
The rise in Bitcoin prices on March 9 was partially attributed to the US inflation data report due this week. Analysts are expecting a new 40-year high, with the consumer price index (CPI) hitting 7.9% annual gains.
Also, a statement from US Treasury Secretary Janet Yellen regarding President Biden’s executive order on digital assets was a bit softer than expected. Although removed from the US Treasury Department’s website because it was apparently published early in error, the order will apparently call for “a coordinated and comprehensive approach to digital asset policy.”
The commodity rally was a harbinger of Bitcoin’s rise
Considering that the Bloomberg Commodities Index (BCOM) hit an all-time high of 134 on March 8, Bitcoin’s recent strength should come as no surprise. Despite a correction to 129, BCOM’s accumulated 30-day gains remain at 18.5%, according to MarketWatch.
According to open interest at Friday’s options expiration, Bitcoin bulls placed big bets between $44,000 and $48,000. These levels may look bullish right now, but Bitcoin tested this level eight days ago.
A broader view uses the call-to-put ratio and shows a 40% advantage over the Bitcoin bulls, as the $460 million call (purchase) instruments have greater open interest than the put options (sale) of $330 million. However, the 1.40 call-to-put indicator is misleading as most bullish bets will become worthless.
For example, if the price of Bitcoin remains below $43,000 at 8:00 UTC on March 11, only $190 million of these call options will be available. This effect occurs because there is no value in the right to buy Bitcoin at $44,000 if it is trading below this level.
Bulls could pocket $140 million at $42,000
Below are the three most likely scenarios based on the current price action. The number of option contracts available on March 11 for bullish (call) and bearish (put) instruments varies according to the expiry price. The imbalance in favor of each side constitutes the theoretical gain:
- Between $40,000 and $42,000: 2,600 calls against 2,100 puts. The net result is balanced between call (bullish) and put (bearish) options.
- Between $42,000 and $43,000: 4,500 calls versus 1,150 puts. The net result favors the bulls by 140 million.
- Between $43,000 and $44,000: 5,100 calls versus 700 puts. The net result favors the buying instruments (bullish) by $190 million.
This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this oversimplification fails to account for more complex investment strategies.
For example, a trader could have sold a call option, thereby gaining negative exposure to Bitcoin above a specific price. Unfortunately, there is no easy way to estimate this effect.
Bears need BTC price below $42,000 to balance the scales
Bitcoin bulls need to hold $42,000 to make a profit of $140 million on March 11. Moreover, a mere 2% price increase from the current level of $42,200 is enough for Bitcoin bulls to get a $190 million gain on Friday’s options expiry.
The bears will find it difficult to suppress the price given the positive near-term sentiment from inflation expectations and less pressure from regulators. Currently, options market data favors call (call) options.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.