The price of Bitcoin (BTC) held support at $30,000 as lower-than-expected US Consumer Price Index (CPI) data was released on April 12. The official inflation rate for March increased to 5% year-on-year, which was slightly below the consensus of 5.1%. It was the lowest reading since May 2021, but still significantly above the Fed’s 2% target.
The data suggests that inflation is no longer the driving force behind Bitcoin’s rally and investors’ focus shifted from the impact of inflationary pressure to potential downturn risks, after the banking crisis revealed just how fragile the market was. financial system after the rise in interest rates by the Federal Reserve in twelve months, from 0.10% to 4.85%.
Aside from the failure of Silicon Valley Bank and the government-backed sale of Credit Suisse to UBS, several warning signs of a macroeconomic downturn have emerged.
The latest data from the ISM Purchasing Managers’ Index fell to its lowest level since May 2020, signaling an economic contraction. According to Federal Reserve documents released on April 12, the aftermath of the US banking crisis is likely to push the economy into a “mild recession” later this year. Because of the crisis, some have speculated that the Fed will refrain from raising interest rates, but officials affirmn that more effort is needed to keep inflation at bay.
According to a report by Moody’s Analytics, commercial real estate prices fell 1.6% in February, the biggest drop since the 2008 financial crisis. Additionally, the national office eviction rate reached 16.5%, indicating the severity of the economic difficulties that businesses are currently facing.
Whatever the reason for Bitcoin’s 50% rally between March 11 and April 11, it shows resistance to FUD, including the SEC’s Wells Notice against Coinbase on March 22, and the CFTC filing a lawsuit against Binance and its CEO, Changpeng Zhao, on March 27. By holding the $30,000 support, Bitcoin demonstrates that the positive momentum can continue regardless of whether inflation remains above 5%.
Bulls are better positioned for weekly BTC options expiration
Not everyone is happy about the rally, especially traders who have placed bearish bets using Bitcoin options. Open interest for the April 14 BTC options expiration is $950 million, with $490 million in call options and $460 million in put options. The bears have been caught off guard with less than 7% of their bets exceeding $29,000.
Below are the four most likely scenarios based on current price developments. The number of call (buy) and put (sell) option contracts available on April 14 varies depending on the expiration price. The imbalance that favors each side constitutes the theoretical gain:
- Between $28,000 and $29,000: 2,600 call options vs. 1,800 put options. The net result is balanced between call and put options.
- Between $29,000 and $30,000: 6,700 call options vs. 500 put options. The net result favors purchase instruments by USD 110 million.
- Between $30,000 and $30,500: 8,500 call options vs. 200 put options. The bulls increase their lead to $250 million.
- Between $30,500 and $31,500: 11,300 call options versus 100 put options. The bulls’ advantage increases to $350 million.
This rough estimate only takes into account call options on bullish bets and put options on neutral to bearish trades. However, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a put option, thus gaining positive exposure to Bitcoin above a certain price, but this effect is difficult to estimate.
Bears are unlikely to reverse their situation
The bulls are expected to push Bitcoin above $30,500 on April 14 at 8:00 am UTC to earn an additional $100 million. The bears, for their part, would need to push the price of Bitcoin below $29,000 to even the scales. However, the bears have recently suffered significant losses, as the short BTC futures contracts were liquidated forcibly worth USD 128 million between April 9 and 11.
As the most likely scenario favors Bitcoin bulls, its gains will most likely be used to reinforce support at $30,000. Bears might consider washing their wounds and waiting for further action from regulators, as the macroeconomic scenario is currently bullish for supply-capped assets like Bitcoin.
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