Bitcoin experienced a significant 17.5% surge from March 16 to March 22, surprising options traders who had anticipated lower price levels below $26,000. This movement was driven by investors seeking protection against ongoing inflation and the prevailing banking crisis.
Bitcoin enthusiasts closely monitored the adverse impacts of near-zero interest rates from April 2020 to April 2022. Some have capitalized on this knowledge to potentially benefit from the $1.2 billion worth of Bitcoin options set to expire on March 24.
Resilient Inflation and Improving Housing Markets
Recent data shows that the official consumer price index (CPI) released on March 22 revealed an unexpected uptick in inflation in England, reaching 10.4% in February primarily due to higher food prices. This increase could prompt the Bank of England to raise interest rates on March 23, which may lead to a recession. While a rise in the cost of capital can be detrimental to businesses and households, it is a measure to combat escalating consumer prices.
Moreover, existing home sales in the United States surged by 14.5% in February following the first annual price decline in over a decade. This increase comes on the heels of a drop in mortgage rates attributed to a growing demand for government bonds. The rise in sales suggests that the housing market may have stabilized at a certain price level.
Investors rushed to seek protection against currency devaluation as governments injected funds to safeguard against banking sector risks. For example, the yield on 5-year U.S. Treasuries dipped from 4.34% on March 8 to 3.6% on March 22, indicating a higher demand for fixed-income instruments.
Are All Asset Prices Rising in the New Economic Environment?
Despite the S&P 500 surpassing the 4,000 mark and the increasing demand in the housing market, consumer prices continue to escalate. Gold registered a 7.8% gain in 2023, reflecting a broad trend where assets potentially benefitting from inflation are on the rise – a typical consequence of currency devaluation.
This trend does not align with the macroeconomic landscape marked by emergency bank bailouts and major corporations undergoing mass layoffs due to dwindling sales outlooks. Consequently, Bitcoin’s recent climb towards $28,000 is partially attributed to the weakening U.S. dollar.
If concerns about a recession persist and negatively impact risk markets, Bitcoin’s ability to sustain the necessary price levels for bullish investors to earn $380 million or more by the March 24 weekly options expiry could be challenged.
Data Reveals Bears Caught Off Guard as Bitcoin Surpasses $26,000
The upcoming weekly BTC options expiry boasts $1.2 billion in open interest, yet this figure might be lower as bears have predominantly wagered on Bitcoin trading below $26,000.
A call-to-put ratio of 1.17 highlights the variance in open interest between buy (call) options valued at $675 million and sell (put) options worth $575 million. Bears were taken by surprise on March 17 when Bitcoin surged above $26,000, potentially resulting in lower outcomes than anticipated.
For instance, if Bitcoin hovers around $27,700 on March 24 at 8:00 a.m. UTC, the put (sell) options could stand at just $21 million. This discrepancy arises from the nullification of the right to sell Bitcoin at $26,000 or $27,000 if BTC trades above those prices on the expiry date.
Most Probable Outcomes Favor the Bulls Significantly
Based on the current price action, four potential scenarios have been identified, each with varying numbers of options contracts available on March 24 for buy (call) and sell (put) instruments at expiry prices. The imbalance favoring either side yields theoretical profits:
– Between $25,000 and $26,000: Favorable net result for buy instruments by $50 million.
– Between $26,000 and $27,000: Buy instruments enjoy a $140 million advantage.
– Between $27,000 and $28,000: Bulls strengthen their position with a $330 million advantage.
– Between $28,000 and $29,000: Bulls further extend their advantage to $405 million.
This rough estimation focuses mainly on call options in bullish bets and put options in neutral-to-bearish trades, overlooking more intricate investment strategies. Bears may seek damage control and shift focus to the $3.8 billion monthly expiry on March 31. Yet, based on weekly options data, bulls are well-positioned to potentially profit by at least $330 million.
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