Bitcoin Price Seeks Direction Ahead of This Week’s $710M BTC Options Expiration

Bitcoin (BTC) bulls have placed most of their options at $24,500 and higher for March 3 expiration, and given the recent uptrend seen by BTC, who can blame them? On February 21, the price of Bitcoin briefly traded above $25,200, reflecting an 18% gain in eight days. Unfortunately, regulatory pressure in the cryptocurrency sector has increased, and despite the fact that no effective measures have been announced, investors are still cautious and reacting to the remarks of policy makers.

For example, on February 23, US Securities and Exchange Commission Chairman Gary Gensler claimed that “everything but Bitcoin” falls under the agency’s jurisdiction. Gensler noted that most crypto projects “are headlines because there is a group in the middle and the public expects profits based on that group.”

March 1 comments from two Federal Reserve (FED) officials reiterated the need for even more aggressive rate hikes to curb inflation. Comments from Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic also dampened investors’ expectations of a monetary policy reversal in 2023.

The tightening stance from the cryptocurrency macroeconomic and regulatory environment has caused investors to reconsider their exposure to cryptocurrencies. However, the fall in the price of Bitcoin effectively extinguished bulls’ expectation of $24,500 or higher options expiring on March 3, so their bets are unlikely to pay off as the deadline approaches.

Bulls were “pulled” by negative regulatory comments

Open interest for options expiration on March 3 is $710 million, but the actual number will be lower since bulls became overconfident after Bitcoin traded above $25,000 on February 21.

Bitcoin options gather open interest for March 3rd. Source: CoinGlass

The call-to-put ratio of 1.12 reflects the imbalance between the open call (buy) interest of $400 million and the put (put) options of $310 million. However, the expected result is probably much lower in terms of active open interest.

For example, if the price of Bitcoin remains close to $23,600 at 8:00 A.M. UTC on March 3, only $50 million of these call (call) options will be available. This difference occurs because the Bitcoin call at $24,000 or $25,000 is worthless if BTC trades below that level at expiration.

The bears have set their trap below $23,000

Below 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 strike price. The imbalance that favors each side constitutes the theoretical profit:

  • Between $22,000 and $22,500: 700 calls against 6,200 places. The net result favors put (bear) instruments by $120 million.
  • Between $22,500 and $23,000: 1,000 calls versus 4,800 calls. The net result favors put (bear) instruments by $85 million.
  • Between $23,000 and $24,000: 2,100 calls versus 1,800 calls. The net result is balanced between bulls and bears.
  • Between $24,000 and $25,000: 4,900 calls versus 400 calls. The net result favors call instruments (bulls) by $110 million.

This crude estimate takes into account call options used in bullish bets and put options exclusively in neutral to bearish trades. Even so, this oversimplification ignores more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a certain price, but unfortunately, there is no easy way to estimate this effect.

Related: Bitcoin’s Least Volatile Month Ever? BTC Price Ends February Up 0.03%

Could Weak US Mortgage Applications Benefit 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 1st may turn the tide in BTC’s favor. Weekly mortgage application volume fell 44% compared to the same period in 2022, hitting a 28-year low.

Given the negative pressure from regulators and investors looking ahead to the next FED decision on March 22, bears have a good chance to push BTC below $23,000 and gain $85 million in the weekly options expiration on 3 Of March. However, there is hope for Bitcoin bulls depending on how traditional markets react to bearish mortgage application data.