Bitcoin (BTC) bulls jumped in to defend the $40,000 level after a devastating retest of the $38,000 support on March 7. The confidence and momentum that was building up earlier in the month was suddenly shattered after BTC failed to break $44,500 for the third time this month on March 2.
The Bitcoin price rally on March 9 has been partially attributed to this week’s expected United States inflation data report. Analysts expect another 40-year record high as the consumer price index (CPI) reaches 7.9% yearly gains.
Furthermore, a statement from the U.S. Treasury Secretary Janet Yellen regarding President Biden’s executive order on digital assets was somewhat milder than expected. Although deleted from the U.S. Department of the Treasury website as it was seemingly released early by error, the order will apparently call for “a coordinated and comprehensive approach to digital asset policy.”
The commodities rally was a presage for Bitcoin’s hike
Considering that Bloomberg Commodities Index (BCOM) reached an all-time high of 134 on March 8, Bitcoin’s recent strength should not come as a surprise. Despite correcting to 129, the BCOM gains accumulated in 30 days remain at 18.5%, according to MarketWatch.
According to the open interest on Friday’s options expiry, Bitcoin bulls placed heavy bets between $44,000 and $48,000. These levels might seem optimistic right now, but Bitcoin tested this level eight days ago.
A broader view uses the call-to-put ratio and shows a 40% advantage to Bitcoin bulls, as the $460 million call (buy) instruments have a larger open interest versus the $330 million put (sell) options. However, the 1.40 call-to-put indicator is deceptive because most bullish bets will become worthless.
For example, if Bitcoin’s price remains below $43,000 at 8:00 am UTC on March 11, only $190 million worth of those call (buy) options will be available. This effect happens because there is no value in the right to buy Bitcoin at $44,000 if it’s trading below that 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 options contracts available on March 11 for bulls (call) and bear (put) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
Between $40,000 and $42,000: 2,600 calls vs. 2,100 puts. The net result is balanced between call (bull) and put (bear) options.
Between $42,000 and $43,000: 4,500 calls vs. 1,150 puts. The net result favors bulls by $140 million.
Between $43,000 and $44,000: 5,100 calls vs. 700 puts. The net result favors the call (bull) instruments by $190 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 instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. Unfortunately, there’s 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 score a $140 million profit on March 11. Furthermore, a mere 2% price hike from the current $42,200 level is enough for Bitcoin bulls to secure a $190-million gain on Friday’s options expiry.
Bears will face difficulty suppressing the price given the short-term positive sentiment of inflation expectations and lessened pressure from regulators. Currently, options markets data favor the call (buy) options.
The views and opinions expressed here 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.