The hope of Bitcoin bulls for a trend reversal may be dashed

Despite ongoing challenges, Bitcoin's fate this week is unlikely to change with the upcoming options expiry. On March 7, following comments from Federal Reserve Chair Jerome Powell, Bitcoin dipped below a four-day trading range around $22,400.

Powell warned that the Fed is ready to combat inflation with higher interest rates and that the "ultimate level of interest rates is likely to be higher than previously anticipated." This caused investors to anticipate a 50 basis point interest rate hike on March 22, putting pressure on risk assets such as stocks, commodities, and Bitcoin.

These developments suggest that the $565 million Bitcoin options expiry on March 10 will likely benefit bears. However, other negative factors in the cryptocurrency market could also be contributing to this outcome.

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

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

Furthermore, 9,860 BTC were sent to Coinbase, raising concerns about the coins 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 compensation repayment. The movement is part of the 2018 rehabilitation plan, and creditors must choose between “early lump sum payment” and “final payment.”The timeline for payment to creditors in either cryptocurrency or fiat currency remains uncertain, with projections suggesting that the ultimate resolution may take several years.

Consequently, the recent dip in Bitcoin's price to $22,000 on March 8 has reinforced the bears' upper hand heading into the March 10 options expiry.

Bulls have made a larger number of bets, but most are unlikely to be profitable. On the March 10 options expiration, there is $565 million in open interest, however, this figure may be lower as bulls have focused their bets on Bitcoin trading above $23,000.

The 1.63 call-to-put ratio reflects the discrepancy in open interest between the $350 million call (buy) options and the $215 million put (sell) options. However, the actual outcome is likely to be much lower as bulls were taken by surprise when Bitcoin dropped below $23,000 on March 3.

For instance, if the price of Bitcoin stays around $22,100 at 8:00 AM UTC on March 10, only $6 million in call (buy) options will be valid. This decrease is due to the fact that the option to purchase Bitcoin at $22,500 or $24,000 becomes invalid if BTC trades below those levels on the expiry date.

The most likely outcomes favor bears by a wide margin

Listed below are the four scenarios that are most likely to occur based on the current price movement. The number of options contracts accessible on March 10 for call (bull) and put (bear) options will vary based on the expiration price. The tilt in favor of either side determines the potential profit:

Between $20,000 and $21,000: 0 calls vs. 7,200 puts. The net result favors the put (bear) instruments by $150 million.
Between $21,000 and $22,000: 100 calls vs. 5,000 puts. The net result favors the put (bear) instruments by $105 million.
Between $22,000 and $23,000: 1,400 calls vs. 1,900 puts. Bears have a modest advantage, profiting some $55 million.
Between $23,000 and $24,000: 4,600 calls vs. 600 puts. The net result favors the call (bull) instruments by $95 million.

This rough calculation takes into account only call options for bullish bets and put options for neutral-to-bearish trades. However, this oversimplification overlooks more complex investment strategies.

For instance, a trader may have sold a call option, which provides them with negative exposure to Bitcoin above a certain price, but it is not easy to calculate this impact.

For bulls to secure a potential profit of $95 million, they must drive the price above $23,000 on March 10. Nevertheless, due to the unfavorable macroeconomic conditions and concerns surrounding Mt. Gox and Silk Road, the odds are in favor of the bears in this week's options expiry.