Bitcoin (BTC) bulls provide plenty of options at $24,500 and above for options expiring on March 3, and given the recent bullishness seen from BTC, who can blame them? On February 21, Bitcoin price briefly traded above $25,200, representing an 18% gain in eight days. Unfortunately, the regulatory pressure on the crypto sector is increasing and although no effective measures have been announced, investors are still wary and reactive to the comments of policy makers.
For example, on February 23, US Securities and Exchange Commission Chairman Gary Gensler claimed that “everything other than Bitcoin” is under the agency’s jurisdiction. Gensler notes that most crypto projects “are securities because there is a group at the center and people expect profits based on that group.”
March 1 comments from two US Federal Reserve (FED) officials expressed the need for more aggressive interest rate hikes to curb inflation. The comments of Minneapolis FED President Neel Kashkari and Atlanta FED President Raphael Bostic also reduced investors’ expectations of a monetary policy reversal occurring in 2023.
The stricter stance of the macroeconomic and crypto regulatory environment is causing investors to rethink their exposure to cryptocurrencies. However, the decline in the price of Bitcoin practically killed the bulls’ expectations for the $24,500 or higher option expiring on March 3, so the bet could not pay off as the deadline approached.
Bulls “carpet pulled” by negative regulatory comments
Open interest for options expiring on March 3 is $710 million, but the actual figure will be lower since bulls became overconfident after Bitcoin traded above $25,000 on February 21.
The call-to-put ratio of 1.12 reflects the imbalance between $400 million call (buy) open interest and $310 million put (sell) option. However, the expected yield may be lower in terms of active open interest.
For example, if the price of Bitcoin stays close to $23,600 at 8:00 am UTC on March 3, only $50 million worth of call (buy) options will be available. This difference occurs because the right to buy Bitcoin at $24,000 or $25,000 is worthless if BTC trades below that level at expiration.
The Bears have set the trap below $23,000
Here are the four most likely scenarios based on current price action. The number of options contracts available on March 3 for call (bull) and put (bear) instruments varies, depending on the expiration price. The disequilibrium in favor of each party is the theoretical advantage:
- Between $22,000 and $22,500: 700 calls vs. 6,200 calls. The net result favors the put (bear) instrument by $120 million.
- Between $22,500 and $23,000: 1,000 calls vs 4,800 calls. The net result favors the put (bear) instrument by $85 million.
- Between $23,000 and $24,000: 2,100 calls vs 1,800 calls. The net result is balanced between bulls and bears.
- Between $24,000 and $25,000: 4,900 calls vs 400 calls. The net result favors the call instrument (bull) by $110 million.
These crude estimates consider call options used in bullish bets and put options specifically in neutral-to-bearish trades. Even so, this oversimplification ignores more complex investment strategies.
For example, traders can sell call options, effectively gaining negative exposure to Bitcoin above a certain price, but unfortunately, there is no easy way to estimate this effect.
related: The most unstable month in Bitcoin? BTC price ended February up 0.03%
Could weak US mortgage applications benefit from BTC bulls?
Bitcoin bulls need to push the price above $24,000 on March 3 to secure a potential profit of $110 million. However, data from the Mortgage Bankers Association announcement on March 1 could turn the tide for BTC. Weekly mortgage application volume fell 44% compared to the same period in 2022, reaching its lowest level in 28 years.
Considering the negative pressure from regulators and investors ‘eying the next FED decision on March 22, bears have a good chance of pressing BTC below $23,000 and profiting by $85 million on March 3 weekly options expire. Still, there is hope for Bitcoin bulls depending on how traditional markets react to bearish mortgage application data.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.