Weaker U.S. financial system has raised BTC bulls’ odds of profiting $780 million on April 28 options expiry.
Bitcoin (BTC) price broke above $29,800 on April 26, totaling 9.6% gains in 24 hours, reaching as high as $30,024 on Bitstamp. Some commentators argue that the 50% drop in First Republic Bank (FRB) shares on April 25 has been the catalyst for Bitcoin’s rally.
Bitcoin gains from banking crisis
Despite the positive shift, its price remains 22.5% down in twelve months, which explains why bulls are far from optimistic.
The FRB debacle comes after the bank’s earnings report, which showed that clients’ deposits shrank by 40.8% during the quarter as customers pulled out their money. Notably, the bank received a $30 billion cash injection in March, but the quarterly outflows topped $100 billion.
On the other hand, the U.S. Federal Reserve signaled that it would hike interest rates above 5%. By increasing the cost of capital, the central bank might succeed in taming inflation, but the unintended consequence is a weaker economy and a bearish market structure for risk assets, including Bitcoin.
Some analysts pin the $31,000 resistance rejection to the harsh cryptocurrency regulatory environment, especially in the U.S.— which became more evident after Coinbase filed a court action to force the Securities and Exchange Commission (SEC) to clarify industries’ rules.
More specifically, the exchange asked the SEC to provide clarification about how it goes about classifying tokens as securities.
Still, Bitcoin’s gains of 27% between March 26 and April 26 is exactly what bulls needed to succeed in April’s $3.2 billion monthly options expiry.
Bitcoin options: bears placed 94% of bets under $28,000
The open interest for the April 28 options expiry is $3.2 billion, but the actual figure will be lower since bears were expecting sub-$28,000 price levels. These traders were caught by surprise as Bitcoin gained 9.6% between April 25 and April 26.
The 1.19 call-to-put ratio reflects the imbalance between the $1.7 billion call (buy) open interest and the $1.5 billion put (sell) options.
However, if Bitcoin's price remains near $29,500 at 8:00 am UTC on April 28, only $54 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $28,000 or $29,000 is useless if BTC trades above that level on expiry.
Bulls aim for $30,000 to secure a $780 million profit
Below are the four most likely scenarios based on the current price action. The number of options contracts available on April 28 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
- Between $27,000 and $28,000: 14,300 calls vs. 8,700 puts. The net result favors the call (bull) instruments by $150 million.
- Between $28,000 and $29,000: 19,000 calls vs. 3,200 puts. Bulls increase their advantage to $445 million.
- Between $29,000 and $30,000: 21,700 calls vs. 1,900 puts. Bulls increase their advantage to $575 million.
- Between $30,000 and $31,000: 26,500 calls vs. 600 puts. The net result favors the call (bull) instruments by $780 million.
This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.
For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price. Unfortunately, there's no easy way to estimate this effect.
Related: Circle CEO blames US crypto crackdown for declining USDC market cap
BTC bears mass-liquidated in leverage shorts
Bitcoin bulls will likely be satisfied with $575 million profits if they fail to break the $30,000 resistance. Meanwhile, bears need a 6.5% price drop from $29,800 to reduce their losses to $150 million. However, leverage bets on the price downside using futures contracts recently saw $166 million in forced liquidations—leaving less room for bears to maneuver.
Given the bullish momentum that the First Republic Bank issues have generated, Bitcoin bulls are in a good position for the April $3.2 billion BTC monthly options expiry.
Most likely, those profits will be used to further strengthen the $28,000 support with the BTC price now well above $29,000, so the expected outcome is especially concerning for bears.
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.
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