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Bitcoin Bulls May Overlook $730M Options Expiry, Focusing on Reaching $40K

In recent months, Bitcoin (BTC) bulls have faced challenges as comments from the United States Federal Reserve suggest potential interest rate hikes in 2022, leading investors to turn to inflation-protected bonds for safety.

The Federal Reserve signaled plans to raise the benchmark interest rate significantly while gradually decreasing monthly debt asset purchases.

Despite some crypto investors viewing Bitcoin’s digital scarcity as a hedge against inflation, its volatility continues to impact its price, often moving in line with risk markets.

The chart above compares Bitcoin’s price in blue with the Russell 2000 equity markets index, which represents smaller U.S. listed companies excluding tech giants. These smaller companies are typically considered riskier and more vulnerable during economic downturns.

Despite recent negative performance, investor confidence remains evident as Canada’s Purpose Bitcoin ETF received over $38 million in Bitcoin on Tuesday, marking its third-largest daily inflow and bringing its total holdings to 31,032 BTC, valued at $1.2 billion.

Regardless of sentiment, Bitcoin bulls face a potential $120 million loss if the BTC price drops below $36,000 by the upcoming options expiry on Friday.

$730 Million in Options Set to Expire on Feb. 4

Leading up to Friday’s options expiry, Bitcoin bulls have heavily bet between $40,000 and $44,000, although current price levels might seem optimistic considering Bitcoin was trading above $42,000 just two weeks ago.

While call (buy) options dominate put (sell) options in open interest, the recent 14% price decline has impacted bullish bets significantly.

If the market price is below the fixed call option price at the expiry time on Feb. 4, the contract value becomes zero. This means that if Bitcoin remains below $37,000 at that time, only $34 million worth of call options will retain value.

Bears Strive to Keep Bitcoin Below $37,000

Three possible scenarios await Friday’s options expiry, with each side aiming for theoretical profits based on the price at expiry:

  • Between $35,000 and $37,000: 950 calls vs. 4,210 puts, favoring puts by $120 million.
  • Between $37,000 and $38,000: 1,650 calls vs. 3,300 puts, favoring puts by $60 million.
  • Between $38,000 and $39,000: 4,230 calls vs. 1,710 puts, showing a balance between calls and puts.

This basic estimate focuses on call options for bullish bets and put options for neutral-to-bearish trades, overlooking potentially more complex investment strategies.

Bulls Aim for $38,000 to Attain Balance

A 3% price increase from the current $36,900 level could prevent Bitcoin bulls from incurring a $120 million loss in the Feb. 4 options expiry. Conversely, keeping BTC below $37,000 could yield a $120 million profit for bears.

Given the current negative sentiment due to tighter macroeconomic conditions, Bitcoin bulls may find it beneficial to focus on a sustainable recovery towards $40,000 and beyond, instead of expending efforts prematurely. Thus, options market data slightly favors put options.

The opinions expressed in this article are solely those of the author and may not reflect Cointelegraph’s views. Every investment decision carries risk, so it is essential to conduct individual research before making any decisions.

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