The price of Bitcoin (BTC) rose 6.3% just two days after reaching $21,370 on Feb. 13, its lowest level in more than three weeks. The price recovery can be explained in part by data from the US consumer price index of February 14, which showed an increase of 6.4% year-on-year in January.
As 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 the higher cost of government debt, creating a bullish environment for scarce assets such as commodities, stock markets and cryptocurrencies.
Bitcoin’s price gains practically wiped out the bears’ expectation that options below $21,500 will expire on February 17, so their bets are unlikely to pay off as the deadline approaches.
The main concern of Bitcoin investors is the possibility of further fallout from regulators following the US Securities and Exchange Commission ordering Kraken to halt its staking rewards program on February 9 and the crackdown on Binance USD issuance ( BUSD) stablecoin on February 13.
Even if the news flow remains negative, bulls can still benefit from options expiration on February 17 by holding the BTC price above $22,500, but the situation could easily turn and favor bears.
Bears did not expect the $22,000 level to hold
The open interest for options expiration on Feb. 17 is $675 million, but the actual figure will be lower as bears expected a price level 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 the $355 million call (buy) open interest and the $320 million put (sell) options. If Bitcoin’s price remains near $22,700 at 8:00 UTC on February 17, only $24 million worth of these put (sell) options will be available. This difference arises because the right to sell Bitcoin for $21,000 or $22,000 is useless if BTC trades above that level afterwards.
Bulls aim for $23,000 to secure a $155 million profit
Below are the four most likely scenarios based on the current price action. The number of option contracts available on February 17 for call (bull) and put (bear) instruments varies depending on the expiration price. The imbalance in favor of each side constitutes the theoretical gain:
- Between $21,000 and $22,000: 700 calls versus 5,500 puts. The net result favors the put (bear) instruments by $100 million.
- Between $22,000 and $22,500: 1,800 calls versus 1,500 puts. The net result is balanced between bears and bulls.
- Between $22,500 and $23,000: 3,800 calls versus 1,100 puts. The net result favors call (bull) instruments by $60 million.
- Between $23,000 and $24,000: 6,900 calls versus 200 puts. The net result favors call (bull) instruments by $155 million.
This rough estimate takes into account the call options used in bullish bets and the put options used exclusively in neutral-to-bearish trades. Yet this oversimplification overlooks more complex investment strategies.
For example, a trader may 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 Eyes $23K Despite US Dollar Strength Hits 6-Week High
Bears could benefit from the impact of regulation
Bitcoin bulls must push the price above $23,000 on February 17 to secure a potential $155 million profit. On the other hand, the bears’ best-case scenario requires a 3.5% deposit below $22,000 to maximize their winnings.
Given the negative pressure from regulators, bears have good chances of turning the table and avoiding a loss of $60 million or more on Feb. 17.
More importantly, looking at a broader time frame, there is little room for the Fed to slow the economy without spiraling out of control on debt interest payments.
February 17 will be an interesting display of strength between the short-term impact of a hostile crypto regulatory environment versus Bitcoin’s long-term benefits from scarcity and censorship resistance.
The price of Bitcoin (BTC) rose 6.3% just two days after reaching $21,370 on Feb. 13, its lowest level in more than three weeks. The price recovery can be explained in part by data from the US consumer price index of February 14, which showed an increase of 6.4% year-on-year in January.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain any investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.
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