Bitcoin bears could face $440M loss in Friday’s options expiry


The rejection that followed Bitcoin’s (BTC) rally to $26,500 may appear to be a victory for bears, but $24,750 on March 14 was the highest daily close in nine months. In addition, Bitcoin has gained 26.5% since March 10, when the California Department of Financial Protection and Innovation shut down Silicon Valley Bank (SVB).

The recent price rise could be attributed to a variety of factors, including the extraordinary $25 billion in financing by the Federal Reserve and the US Treasury on March 12, which reduced the systemic risks of banks. However, Bitcoin bulls are well positioned to profit up to $440 million when weekly options expire on March 17.

How Silicon Valley Bank kicked off a stablecoin bank run

Before its downfall, SVB’s total assets exceeded $200 billion, placing it among the top 20 financial institutions in the United States. However, the most direct impact on the cryptocurrency market was the $3.3 billion deposit of Circle’s USD Coin (USDC) stablecoin reserves. Net redemptions of USDC totaled $3 billion between March 13 and 15, after the stablecoin traded below parity.

Signature Bank, which was shut down on March 12 by the New York Department of Financial Services, added to the negative pressure on crypto markets. But Silvergate was more important to the crypto industry because it provided services to many crypto-related businesses, including Coinbase, Celsius and Paxos.

This movement may explain why the $1.2 billion Bitcoin weekly options set to expire on March 17 will almost certainly benefit bulls. However, a drop in commodity prices, especially for oil, could have an impact on cryptocurrencies.

Crude oil at its lowest price since December 2021

Oil prices fell 10% between March 9 and 15, hitting their lowest levels in more than a year on concerns that a banking sector confidence crisis could trigger a recession and reduce oil demand.

According to government data released on March 16, US crude stockpiles rose by 1.6 million barrels last week, adding to market bearishness. The increase was higher than the consensus forecast of 1.2 million barrels.

If the fear of contagion spreads to other markets, Bitcoin may struggle to maintain the price levels required to profit $360 million or more in the March 17 options expiration.

Bears placed more bets, but the vast majority will be worthless

Open interest for the March 17 options expiration is $1.2 billion, but the actual figure will be lower as bears have focused their bets on Bitcoin trading below $23,500.

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Bitcoin options aggregate open interest for March 17. Source: Coinglass

The difference in open interest between the $590 million call (buy) options and the $640 million put (sell) options is reflected in the 0.93 call-to-put ratio. The expected result, however, is likely to be much lower, as bears were caught off guard when the price of Bitcoin surged above $23,000 on March 13.

For example, if the price of Bitcoin remains near $24,500 at 8:00 am UTC on March 17, there will only be $32 million in put (sell) options available. This distinction arises because the right to sell Bitcoin at $23,000 or $24,000 becomes void if BTC trades above that level at expiration.

Related: Blockchain Association seeks information from Fed, FDIC and OCC on ‘de-banking’ crypto firms

The most likely results favor bulls by a wide margin

Below are the four most likely scenarios based on current price action. The number of options contracts available on March 17 for call (buy) and put (sell) instruments varies depending on the expiration price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $23,000 and $24,000: 9,900 calls versus 5,800 puts. The net result favors the call (buy) instruments by $100 million.
  • Between $24,000 and $24,500: 11,400 calls versus 3,700 puts. The net result favors the call instruments by $185 million.
  • Between $24,500 and $25,500: 15,100 calls versus 700 puts. Bulls increase their advantage to $360 million.
  • Between $25,500 and $26,000: 17,500 calls versus 300 puts. The Bulls advantage increases to $440 million.

This rough estimate only considers call options in bullish bets and put options in neutral to bearish trades. However, this oversimplification excludes more complex investment strategies.

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

To significantly reduce their losses, Bitcoin bears need to push the price below $24,000 on March 17. However, bears have less margin to apply negative pressure given the $240 million. liquidation in leveraged short contracts using futures between March 12th and 15th.

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