Bitcoin (BTC) bulls reversed course on option expiration today (March 4), having rallied 14% on Feb. 28. Keeping the price above $43,000 confirms a separation from traditional markets. For example, the Emerging Markets Equity Index, MSCI, is down 3.5% in five days, while the US index of small and mid-cap stocks, the Russell 2000, is up 0.9%.
Investors are increasingly concerned about interest rate hikes from the US Federal Reserve (Fed), slated to take place throughout 2022. As a result, over the past 30 days, some of the big names have been snubbed. Influences such as Paypal PYPL down 38%, META down 34% and Shopify SHOP down 31.5%.
Inflation data at a 40-year high prompted investors to take profits on risk assets and the US Dollar Index (DXY) hit a 20-month high of 97.6. DXY measures the dollar’s strength against a basket of top currencies and rises as traders seek shelter in North American currencies.
Bitcoin is high risk
Bitcoin’s recent strength surprised most investors as its correlation to the Nasdaq Composite index hit 73% on February 20, near a five-year high of 74% in 2020.
Call options and put options were evenly matched during today’s options expiration, but the bears were taken by surprise after Bitcoin price stabilized above $43,000 in this week.
A broader look using the Call-to-Put ratio shows the balance between the open interest (OI) of a $450 million call versus a $440 million put. However, the Call-to-Put indicator at 1.02 is incorrect as most down bets will become worthless.
For example, if Bitcoin price were still above $43,000 at 3pm today, only $155 million of those put options would be available because the right to sell Bitcoin at $40,000 would be void if BTC delivered. move above that level at expiration.
Here are the three most likely scenarios based on current price action. The number of options contracts available today to the bulls and the bears varies depending on the expiration price. An imbalance in favor of each constitutes a theoretical profit:
From $42,000 to $44,000: 560 buy orders vs 150 sell orders. The net result is $175 million in favor of the bulls.
From $44,000 to $46,000: 760 buy orders vs 40 sell orders. The net result gives the bulls a $320 million profit.
From $46,000 to $47,000: 840 buy orders vs 5 sell orders. Bulls increase profits to $380 million.
This rough estimate considers put options used in bear bets and calls exclusively for neutral to bullish trades. Even so, this simplification does not imply more complex investment strategies.
The bears are likely to surrender
Bitcoin bulls need a pump above $44,000 to reach a profit of $250 million on March 3. On the other hand, the bears best-case demand price below $42,000 to cut losses to 110 millions of dollars.
Bitcoin bears have recently liquidated $300 million of leveraged Short positions, so it is unlikely to get the support needed to put pressure on Bitcoin price in the short term.
Explain what the bulls are
A Bull Market, also known as a bull cycle, is defined as a period in which the majority of investors are buying, demand is greater than supply, market confidence is high, and prices are rising. If, in a certain market, you see prices rapidly trending up, this could be a sign that the majority of investors are becoming optimistic or confident about the price going up further. and could mean it is looking at the start of a Bull market.
Investors who believe that the price will continue to rise are called bulls. As investor confidence increases, a positive feedback loop emerges, which tends to attract further investment, causing the price to continue to rise.