Bitcoin bulls are aiming to hold onto this week’s gains leading up to the $675 million options expiry on Friday, February 17th. The U.S. Federal Reserve (FED) is continuing to monitor the overheated economy and is likely to take further action to curb inflation, such as raising interest rates. This has created a bullish environment for scarce assets such as commodities, stock markets, and cryptocurrencies.
Bitcoin’s price gain has all but eliminated bears’ expectations for a sub-$21,500 options expiry on February 17th, so their bets are unlikely to pay off as the deadline approaches. Investors’ primary concern is the possibility of further impacts from regulators, such as the staking rewards program by the Kraken exchange being halted by the U.S. Securities and Exchange Commission on February 9th, and the crackdown on Binance USD (BUSD) stablecoin issuing on February 13th.
The open interest for the February 17th options expiry is $675 million, but this figure will likely be lower since bears were expecting sub-$22,000 price levels. These traders became overconfident after Bitcoin traded below $21,500 on February 13th. The 1.12 call-to-put ratio reflects the imbalance between the $355 million call (buy) open interest and the $320 million put (sell) options. If Bitcoin’s price remains near $22,700 at 8:00 am UTC on February 17th, only $24 million worth of these put (sell) options will be available. This difference occurs because the right to sell Bitcoin at $21,000 or $22,000 is useless if BTC trades above that level on expiry.
Bulls are aiming for $23,000 to secure a $155 million profit. Below are the four most likely scenarios based on the current price action. The number of options contracts available on February 17th for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
• Between $21,000 and $22,000: 700 calls vs. 5,500 puts. The net result favors the put (bear) instruments by $100 million.
• Between $22,000 and $22,500: 1,800 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
• Between $22,500 and $23,000: 3,800 calls vs. 1,100 puts. The net result favors the call (bull) instruments by $60 million.
• Between $23,000 and $24,000: 6,900 calls vs. 200 puts. The net result favors the call (bull) instruments by $155 million.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies. For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.
Bears have good odds of flipping the table and avoiding a $60 million or larger loss on February 17th due to the negative pressure from regulators. More importantly, looking at a broader time frame, there is little room for the FED to slow down the economy without spiraling the debt interest repayments out of control.
Friday will be an interesting display of strength between the short-term impact of a hostile crypto regulation environment versus Bitcoin’s long-term scarcity and censorship resistance benefits. Bitcoin (BTC) price gained 6.3% just two days after reaching $21,370 on February 13th, which was the lowest level seen in more than three weeks. The price recovery can be partially explained by the February 14th U.S. Consumer price index data displaying a 6.4% increase in year-over-year inflation in January.
The cryptocurrency market is currently facing a difficult situation as regulators are taking action against exchanges and stablecoins. Investors are worried that this could have a negative impact on the market, however, the long-term benefits of Bitcoin’s scarcity and censorship resistance could prove to be more beneficial. On Friday, we should get a better idea of how the market will react to the current situation.
Bulls are hoping that the price of Bitcoin will stay above the $22,500 level on February 17th in order to maximize their profits. If the price drops below this level, bears will be able to take advantage of the situation and minimize their losses. It is important to note that this article does not contain investment advice or recommendations and that every investment and trading move involves risk. Investors should always conduct their own research before making any decisions.
