By Mark Ackman
Today, Bitcoin options worth $4.2 billion will expire. Despite recent regulatory crackdowns on cryptocurrencies, buyers who believe that the market will rise are likely to make a profit.
Regulations Remain the Primary Concern For Bitcoiners
Bitcoin investors remain mainly concerned about regulations, particularly in light of the recent lawsuit filed by the Commodity Futures Trading Commission against Binance.
The Commission alleges that Binance violated trading and derivatives laws. Through legal action, the commission seeks repayment of all kinds of earnings made and received from US citizens.
In addition to this civil penalties will also be imposed for the violations. Bitcoin’s ascent was driven by a change in attitude towards risky investments following remarks by Jerome Powell.
The US Federal Reserve Chair stated that increases in interest rates were no longer the primary means of controlling inflation.
The central bank recognized that this approach could lead to harsher credit situations for consumers and enterprises. This would resultantly impact economic results.
When interest rates increase, fixed-income investors stand to gain more, which makes the purchase of stocks and commodities less attractive.
The Fed decided to take a different approach by adding a sum of $339 billion in liabilities over two weeks.
This move was intended to address the banking emergency and prevent it from escalating and leading to uncontrolled inflation.
Bitcoin Bulls and Bears
Considering the favorable conditions for risky investments, those who believe in Bitcoin’s success can potentially make a profit of up to $1.4 billion.
The open interest for the options that will expire today is $4.2 billion, but the final amount may end up being lower.
This is because those who predicted that the price of Bitcoin would drop below $26,500 were not anticipating the cryptocurrency’s sudden 32% surge.
In the second week of March, the token saw a 32% increase in its value and caught those traders off guard.
The call-to-put ratio of 1.34 demonstrates the disparity between the $2.4 billion worth of open call options and the $1.8 billion worth of selling options.
However, if the price of Bitcoin stays around $28,000, only $25 million of put options will be accessible.
This is because the selling option at $26,000 or $27,000 becomes worthless if its price is higher than that on the expiration date.
Four Possible Scenarios for the Options Contracts
Based on the current price action, there are four possible scenarios for the options contracts available today for both call and put instruments.
Each of the four possibilities will yield different results. The theoretical profit is determined by an imbalance in favor of one side over the other.
If the price of Bitcoin falls in the $25,000 to $26,000 range, there will be 27,200 calls and 12,700 puts. This favors the call option resulting in a net profit worth $360 million.
If the price is between $26,000 and $27,000, there will be buying options of 32,300 and selling options of 8,500. The result would support the call instruments with a net profit of $620 million.
If the price of Bitcoin is between $27,000 and $28,000, the imbalance increases significantly with 38,100 calls and only 3,000 puts. This gives the buyers a major advantage resulting in a net profit of $1.2 billion.
If Bitcoin’s price lands in the $28,000 to $30,000 range, the call instruments are expected to dominate with 48,300 calls and 400 puts. This would result in a net profit of $1.4 billion for the bulls.
Options Expiry and Bitcoin’s Price Action
To have the chance to gain a possible profit of $1.4 billion, Bitcoin’s supporters need to raise its value to more than $29,000.
Conversely, sellers can only hope for more regulatory FUD regarding stablecoins or significant cryptocurrency platforms. However, so far, this strategy has not been successful for them.
Based on the bullish momentum following Federal Reserve’s inability to increase interest rates again, Bitcoin bulls appear to be in a good position.
Bitcoin has experienced significant growth this year, with a 70.5% increase since the beginning of the year.
Despite remaining around $28,000 until mid-march, the token previously traded under $25,000 before gaining momentum and surging to $28,000.
Due to this increase, the majority of the bearish bets for the $4.2 billion options expiry in March were positioner at or below $26,500.