Bitcoin bulls’ desire for a trend reversal could be wiped out by this week’s $565M options expiration

Bitcoin’s (BTC) price fell below a four-day narrow trading range near $22,400 on March 7 following comments by US Federal Reserve Chairman Jerome Powell while sitting before the Senate Banking Committee. During the congressional appearance, the Fed chairman warned that the bank is prepared to tame inflation by pushing for more significant rate hikes.

Fed Chair Powell added that “the final level of interest rates is likely to be higher than previously expected,” and that recent economic data was “stronger than expected.” Those comments significantly increased investor expectations for a 50 basis point interest rate hike on March 22, putting pressure on risk assets such as stocks, commodities and Bitcoin.

This move could explain why the $565 million weekly Bitcoin options expiring on March 10 will almost certainly favor bears. Nevertheless, additional negative crypto market events may have also played a significant role.

Bitcoin from the Silk Road and Mt. Gox is on the move

The movement of several wallets linked to US law enforcement seizures on March 8 added to the price pressure on Bitcoin investors. Over 50,000 Bitcoins worth $1.1 billion were transferred, according to data shared by analytics firm PeckShield on the chain.

Furthermore, 9,860 BTC was sent to Coinbase, raising concerns that the coins were being sold on the open market. These wallets are directly linked to the former Silk Road darknet marketplace and were seized by law enforcement in November 2021.

Mt. Gox creditors have until March 10 to register and choose a method of repayment of compensation. The move is part of the 2018 rehabilitation plan, and creditors will have to choose between “early lump sum payment” and “final payment”.

According to Cointelegraph, it is unclear when creditors can expect to be paid in cryptocurrency or fiat currency, but estimates indicate that the final settlement could take several years.

As a result, Bitcoin’s price drop to $22,000 on March 8 effectively confirmed the bears’ advantage at the expiration of the options on March 10.

The Bulls bet far more, but most will be worthless

The March 10 options expiration has $565 million in open interest, but the actual number will be lower because bulls have concentrated their bets on Bitcoin trading above $23,000.

The call-to-put ratio of 1.63 reflects the difference in open interest between the $350 million call and $215 million put options. However, the expected result is likely to be much lower, as bulls were caught off guard when Bitcoin fell below $23,000 on March 3.

For example, if the price of Bitcoin remains close to $22,100 at 08:00 UTC on March 10, only $6 million in call (call) options will be available. This difference occurs because the right to buy Bitcoin at $22,500 or $24,000 becomes void if BTC trades below this level at expiration.

Related: Bitcoin Clings to $22K as Dollar Strength Rises to December Levels — What’s Next?

The most likely outcomes favor bears by a large margin

Below are the four most likely scenarios based on current price action. The number of option contracts available on 10 March for buy (bull) and put (bear) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

• Between $20,000 and $21,000: 0 calls vs. 7200 sets. The net result favors the put (bear) instruments by $150 million.
• Between $21,000 and $22,000: 100 calls vs. 5000 calls. The net result favors the put (bear) instruments by $105 million.
• Between $22,000 and $23,000: 1,400 calls vs. 1,900 sets. Bears have a modest advantage, earning about $55 million.
• Between $23,000 and $24,000: 4,600 calls vs. 600 putts. The net result favors the call (bull) instruments by $95 million.

This rough estimate only considers call options in bullish plays and put options in neutral-to-bearish trades. Nevertheless, this simplification precludes more complex investment strategies.

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

To turn the tables and secure a potential profit of $95 million, Bitcoin bulls need to push the price above $23,000 on March 10. But given the negative macroeconomic pressures and the R&D coming from Mt. Gox and Silk Road, the odds are favored in this week’s options expiration.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.