Significant headwinds are hitting BTC and options expiring this week are unlikely to provide relief.
The name of Bitcoin
BTC was made
The ticker goes down
The narrow four-day trading range fell below $22,400 on March 7 following comments by US Federal Reserve Chairman Jerome Powell before the Senate Banking Committee. During an appearance in Congress, the Fed chairman warned that his bank was ready to control inflation by pushing for more significant interest rate increases.
Powell added that “the final level of interest rates is likely to be higher than expected” and that recent economic data is “stronger than expected.” The comments significantly raised investor expectations for a 50 basis point interest rate hike on March 22, putting pressure on risk assets such as stocks, commodities and bitcoin.
The possibility of a $565 million weekly bitcoin option expiring on March 10 likely explains why bears will benefit. However, additional negative developments in the crypto market may also play a role.
Bitcoins are on the move from Silk Road and Mount Gox
The movement of several wallets linked to a US police seizure on March 8 added to price pressure on bitcoin investments. More than 50,000 bitcoins worth $1.1 billion have been transferred, according to data shared by on-chain analytics firm PeckShield.
In addition, 9,860 BTC were sent to Coinbase, raising concerns about the sale of coins on the open market. The wallets are directly linked to the Silk Road dark web marketplace and were seized by law enforcement in November 2021.
Mount Gox borrowers have until March 10 to register and choose a repayment method. The move is part of the 2018 rehabilitation plan and will force borrowers to choose between an “early lump sum payment” and a “final payment”.
It is not clear when creditors can expect to be paid in cryptocurrency or fiat currency, but estimates indicate that a final settlement could take several years.
As a result, the price of bitcoin fell to $22,000 on March 8, effectively confirming the bears’ profits when the options expired on March 10.
The bulls bet a lot more, but most of them are worthless
There is $565 million in open interest for the options to expire on March 10, but the actual number will be lower as bulls have focused their bets on bitcoin trades above $23,000.
The call-to-put ratio of 1.63 reflects the disparity in open interest between a $350 million call (buy) option and a $215 million put (sell) option. However, the expected impact is likely to be much smaller, as bulls were stuck on March 3 when bitcoin fell below $23,000.
For example, if the price of Bitcoin remains near $22,100 at 8:00 A.M. UTC on March 10, only $6 million in call (call) options will be available. This difference occurs because if BTC trades below that level at expiration, the right to buy bitcoins at $22,500 or $24,000 is void.
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The most likely outcomes favor the bear by a wide margin
Below are the four most likely scenarios based on current price action. The number of option contracts available on March 10 for call (bull) and put (bear) instruments depends on the expiration rate. The imbalance favored by each side constitutes a theoretical advantage:
Between $20,000 and $21,000: 0 calls versus 7,200 puts. The net result favors put (bearish) instruments by $150 million.
Between $21,000 and $22,000: 100 calls versus 5,000 puts. The net result favors put (bearish) instruments by $105 million.
Between $22,000 and $23,000: 1,400 calls versus 1,900 puts. The Bears have a slight edge, making about $55 million.
Between $23,000 and $24,000: 4,600 calls versus 600 puts. The net result favors call (bull) instruments by 95 million dollars.
This rough estimate only takes into account call options on bullish bets and put options on neutral to bearish trades. However, this simplification excludes more complex investment strategies.