Over the past three months, the daily close of Bitcoin (BTC) has fluctuated between $35,050 and $47,550, a range of 35.7%. Although it may seem excessive, this is not unusual, especially considering the 68% annualized volatility in BTC.
The relief rally came after the April 11 drop below $40,000 after the US Consumer Price Index (CPI) report announced 8.5% for March, the highest level since 1981. Meanwhile, in the UK, the CPI jumped to 7 %, 30 year high.
For these reasons, cryptocurrency traders are increasingly concerned about the ability of the US Federal Reserve to raise projected interest rates throughout 2022 to contain inflationary pressure. If global economies enter a recession, investors are likely to stay away from riskier asset classes such as cryptocurrencies.
Moreover, the Bitcoin price correction has been costly for traders to take advantage of as the total liquidations reached $428 million on the derivatives exchanges.
Bulls place their bets at $50,000 and above
The open interest for the April 15 expiration of Bitcoin options is $615 million, but the actual number will be much lower because the bulls have been overly optimistic. These traders may have cheated with the short-term pump to $48,000 on March 28th because their bets on the April 15th options expiration run well above $50,000.
Bitcoin’s recent dip below $41,000 has surprised the bulls, with only 18% of call (buy) options placed on April 15th below this price level.
The buy-to-call ratio of 1.21 shows the dominance of the open interest of the $335 million call (buy) versus the $280 million put (call) options. However, with Bitcoin standing near $41,000, most bullish bets are likely to become worthless.
If the Bitcoin price remains below $42,000 at 8:00 AM UTC on April 15th, only $62 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $42,000 is worthless if BTC is trading below this level at expiration.
Bulls aim to get $43,000 to balance the scales
Here are the four most likely scenarios based on current price action. The number of options contracts available on April 15 for the buy (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical profit:
- Between $39,000 and $41,000: 950 calls vs 5400 puts. The net result favors put (Bear) by $180 million.
- Between $41,000 and $42,000: 1500 calls vs 3950 puts. The net result favors bears by $100 million.
- Between $42,000 and $43,000: 1,850 calls vs 3,300 puts. Net result favors bots by $60 million.
- Between $43,000 and $45,000: 2700 calls vs 2800 puts. The net result is balanced between the options of buying (buying) and selling (selling).
This crude estimate takes into account the buy options used in bearish bets and the call options exclusively in neutral to bullish trades. However, this oversimplification overlooks more complex investment strategies.
For example, a trader could have sold a put option, effectively gaining positive exposure to bitcoin above a certain price, but unfortunately, there is no easy way to estimate this effect.
Related: Mark Yusko explains the real problem with Fed policy – and why bitcoin matters.
Bears will try to stabilize BTC below $41,000
Bitcoin bears need to press below $41,000 on April 15 to lock in $180 million in profit. On the other hand, a best-case scenario for the bulls would require a push above $43,000 to neutralize any impact.
Bitcoin speculators liquidated their $180 million of leverage on April 10 and April 11, so they must have less margin than is required to push the price higher. With this said, the bears will undoubtedly attempt to suppress BTC below $41,000 before the April 15th options expire.
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