Bitcoin Bulls Aim To Hold This Week’s BTC Gains Leading To Friday’s $675M Options Expiration

The price of Bitcoin (BTC) rose 6.3% just two days after hitting $21,370 on February 13, which was the lowest level in more than three weeks. The price rise can be partly explained by the data from the US consumer price index on 14 February which shows a 6.4% increase in year-over-year inflation in January.

While the US Federal Reserve continues to monitor the overheated economy, the most likely scenario is further rate hikes to curb inflation. The unintended consequence is increased public debt costs, creating a bullish environment for scarce assets such as commodities, stock markets and cryptocurrencies.

Bitcoin’s price gains virtually extinguished the bears’ expectations of a sub-$21,500 options expiration on February 17, so their efforts are unlikely to pay off as the deadline approaches.

Bitcoin investors’ primary concern is the possibility of further regulatory pressure after the US Securities and Exchange Commission ordered Kraken to halt its stake reward program on February 9 and the February 13 shutdown of Binance USD (BUSD) stablecoin issuance.

Although the news flow remains negative, bulls can still profit from February 17 options expiring by keeping the BTC price above $22,500, but the situation could easily turn in favor of bears.

Bears did not expect the $22,000 level to hold

The open interest for the February 17 options expiration is $675 million, but the actual number will be lower since the bears expected price levels below $22,000. These traders became overconfident after Bitcoin traded below $21,500 on February 13.

The call-to-put ratio of 1.12 reflects the imbalance between $355 million call (buy) open interest and $320 million put (sell) options. If Bitcoin’s price remains near $22,700 at 8:00 UTC on February 17th, only $24 million of these put options will be available. This difference occurs because the right to sell Bitcoin at $21,000 or $22,000 is useless if BTC trades above that level at expiration.

The Bulls are targeting $23,000 to secure a $155 million profit

Below are the four most likely scenarios based on current price action. The number of option contracts available on 17 February for buy (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

• Between $21,000 and $22,000: 700 calls vs. 5500 putts. The net result favors the put (bear) instruments by $100 million.
• Between $22,000 and $22,500: 1,800 calls vs. 1,500 putts. The net result is balanced between bears and bulls.
• Between $22,500 and $23,000: 3800 calls vs. 1100 putts. The net result favors the call (bull) instruments by $60 million.
• Between $23,000 and $24,000: 6,900 calls vs. 200 putts. The net result favors the call (bull) instruments by $155 million.

This rough estimate considers the call options used in bullish plays and the put options exclusively in neutral-to-bearish trades. Yet 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 price sees $23,000 despite dollar strength hitting 6-week high

Bears can benefit from the impact of regulation

Bitcoin bulls need to push the price above $23,000 on February 17 to secure a potential profit of $155 million. On the other hand, the bears’ best-case scenario requires a 3.5% dump below $22,000 to maximize gains.

Given the negative pressure from regulators, bears have good chances to turn the tables and avoid a loss of $60 million or more on February 17.

More importantly, looking at a broader time frame, there is little room for the Fed to slow the economy without getting debt repayments out of control.

February 17 will be an interesting show of strength between the short-term impact of a hostile crypto regulatory environment versus Bitcoin’s long-term scarcity and censorship-resistance benefits.

Bitcoin (BTC) price rose 6.3% just two days after hitting $21,370 on February 13, which was the lowest level in more than three weeks. The price rise can be partly explained by February 14 data from US consumer price indices showing a 6.4% increase in year-over-year inflation in January.