Recent BTC price fluctuations are a result of regulatory pressure and the Federal Reserve’s stance on US inflation.
Wikipedia
BTC
ticking down
$21,479
The bulls have hedged most of their options at $24,500 or higher with the March 3rd option expiration date, and given BTC’s recent bullishness, who can blame them? On February 21, Bitcoin’s price briefly reached $25,200, reflecting an 18% gain in eight days. Unfortunately, regulatory pressure on the crypto sector has increased, and while no effective measures have been announced, investors are still cautious and reacting to politicians’ comments.
For example, on February 23, the U.S. Securities and Exchange Commission Chairman Gary Gensler noted that “everything but bitcoin” falls under the agency’s jurisdiction. Gensler notes that most crypto projects are “securities because there is a group in the middle and people expect profits based on that group.”
In remarks on March 1, two US Federal Reserve officials reiterated the need for more aggressive interest rate hikes to curb inflation. Comments by Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostick also dampened investors’ expectations for a change in monetary policy in 2023.
A tougher stance from the macroeconomic and crypto-regulatory environment has forced investors to rethink their stance towards cryptocurrencies. However, the decline in the price of bitcoin wiped out bulls’ expectations for options at $24,500 or higher for March 3 expiration, so their bets are unlikely to pay off as the deadline approaches.
Bulls “extended” due to negative regulatory comments
Open interest for options expiring on March 3 is $710 million, but the actual number is lower as bulls are more confident after bitcoin traded above $25,000 on February 21.
The call-to-put ratio of 1.12 reflects the imbalance between $400 million calls (buys) and $310 million puts. However, the expected return on active open interest is likely to be very low.
For example, if the price of Bitcoin is around $23,600 at 8:00 AM UTC on March 3rd, these call (buy) options will only be available for $50 million. This difference arises because the right to buy Bitcoin at $24,000 or $25,000 is worthless if BTC trades below that level at expiration.
Bears set a trap below $23,000
Below are the four most likely scenarios based on the current price movement. The number of option contracts available on March 3 for call (bullish) and put (bearish) instruments depends on the expiration price. Imbalance in favor of each side Theoretical gain:
$22,000 to $22,500: 700 calls and 6200 puts. The net result was favorable (bearish) at $120 million.
$22,500 to $23,000: 1,000 calls and 4,800 puts. Net result was favorable (bearish) at $85 million.
$23,000 to $24,000: 2,100 calls and 1,800 puts. The net result is a balance between bulls and bears.
$24,000 to $25,000: 4,900 calls and 400 puts. The net result is $110 million in favor of calls (bullish).
This rough estimate takes into account call options used in bullish bets and put options exclusively in neutral bear trades. However, this oversimplification ignores more complex investment strategies.
For example, a trader can sell a call option, effectively gaining negative exposure to Bitcoin above a certain price, but unfortunately there is no easy way to measure this effect.
Related: Month With Least Bitcoin Volatility? BTC price increased by 0.03% at the end of February
A weak U.S. Will Mortgage Applications Benefit BTC Bulls?
Bitcoin bulls need to push the price above $24,000 on March 3 to take a potential profit of $110 million. However, data from the Mortgage Bankers Association announcement on March 1 may turn in BTC’s favor. Weekly mortgage applications fell 44% year-on-year in 2022, to a 28-year low.
With negative pressure from regulators and investors for the next Fed decision on March 22, bears have a good chance of taking BTC below $23,000 and taking a profit of $85 million by the time weekly options expire on March 3. However, there is hope for Bitcoin. Bulls depending on how traditional markets react to bearish mortgage applications data.
