With $1.9 billion worth of BTC options set to expire on Feb. 24, bulls are poised to profit despite the Federal Reserve’s intent to cool the U.S. economy.
bitcoin
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$23,018
A 16% jump in prices between Feb. 13 and Feb. 16 has all but wiped out bearish expectations of a one-month options expiry below $21,500. Those bearish bets are unlikely to pay off due to the sharp rally, especially since the expiration date is February 24. However, the bulls are not counting on a strong rally to $25,200 on February 21, which reduces their chances. A profit of $480 million was made this month when BTC options expired.
The main concern for bitcoin investors is monetary tightening, as the Federal Reserve raises interest rates and cuts its balance sheet by $8 trillion. On February 22, the minutes of the latest meeting of the Federal Open Market Committee showed that members unanimously agreed to raise interest rates by 25 basis points, and the Fed is ready to continue raising interest rates if it considers it necessary.
St. Louis Fed President James Bullard told CNBC on Feb. 22 that more aggressive rate hikes would make them more likely to keep inflation in check. Brad said:
“Let’s stay sharp and let’s get inflation under control in 2023.”
If this is confirmed, rising interest rates will have a negative impact on risk assets, including Bitcoin, as it provides more returns for fixed-income investments.
Even if the news remains negative, bulls could still pocket a profit of up to $480 million when the monthly options expire on Friday. However, bears can still significantly improve their positions by pushing the price of BTC below $23,000.
Bears Didn’t Expect Bitcoin to Hold $22,000
Open interest in monthly options expiring on Feb. 24 was $1.91 billion, but the actual figure will be lower as the expected price is below $23,000. Those traders were surprised, however, when bitcoin rallied 13.5% between Feb. 15 and 16.
Bitcoin option pools were open on February 24. Source: CoinGlass
The call-to-put ratio of 1.55 reflects an imbalance between $1.16 billion in calls (buys) and $750 million in puts. If the price of bitcoin stays around $24,000 on Feb. 24 at 8:00 AM UTC, those put options will only have $125 million available. This discrepancy occurs because the right to sell Bitcoin at $22,000 or $23,000 is worthless if BTC is trading above that level at expiration.
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Bulls are targeting $23,000 for a $155 million profit.
Below are the four most likely scenarios based on current price action. The number of option contracts for call (call) and put (put) instruments available on February 17 depends on the expiration price. The imbalance in favor of each party is the following theoretical profit:
$22,500 to $23,000: 12,500 calls and 10,700 puts. The net result supports a $40 million call option (call).
$23,000 to $24,000: 16,200 calls vs. 7,600 puts. The net result supports a $200 million call option (call).
$24,000 to $24,500: 21,100 calls vs. 5,200 puts. The bulls extended their lead to $385 million.
$24,500 to $25,000: 23,200 calls vs. 3,600 puts. The bulls dominated with a $480 million profit.
This rough estimate takes into account calls used in bullish bets and puts exclusively for neutral bear trades. However, this oversimplification ignores more complex investment strategies.
For example, a trader could sell a call option, effectively creating a rally against Bitcoin above a certain price, but unfortunately, there is no easy way to measure this effect.
Related: US lawmakers propose bill to limit Fed’s power over digital dollar
Fed tightening is the best way for bears
Bitcoin bulls would need to push the price above $24,500 on Feb. 24 for a potential profit of $480 million. On the other hand, the best-case scenario for the bears is a 3.5% drop below $23,000 to minimize losses.
Bears are likely to improve their stance and reconcile the $40 million losses on Feb. 24 as the Fed seeks to curb the economy and contain negative pressures on inflation
