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Bitcoin’s (BTC) 43% rally between March 10 and March 20 surprised options traders and this is proven by the minimal14% of the $1.12 billion open interest set to expire on April 7 being placed at $28,000 and higher. 

The positive price movement can be partially attributed to an increase in commodity demand, as investors perceive risks in the central bank’s emergency funding programs, as injecting liquidity causes inflationary upward pressure.

According to Urban Angehrn, CEO of the Swiss Financial Market Supervisory Authority (FINMA), if Credit Suisse had not been rescued, “many other Swiss banks would probably have faced a run on deposits.” Angehrn added that, “there was a high probability that the resolution of a global systemically important bank would have led to contagion effects and jeopardized financial stability in Switzerland and globally.”

Investors’ appetite for commodities vastly increased after the U.S. Treasury Department reportedly discussed the possibility of expanding the Federal Deposit Insurance Corporation (FDIC) insurance for bank deposits on March 21. Oil prices measured by the WTI have rallied 23.5% since March 20, and gold broke above $2,000 on April 5 — its highest daily close since Aug. 2020.

An unexpected shockwave on a $33 trillion asset class that was previously thought to be a safe haven for inflation could have benefited the commodity sector as well. Morgan Stanley Wealth Management has issued a warning about the commercial real estate market, predicting trouble with refinancing.

According to the bank’s report, the sector has been hard hit by increases in remote work and corporate layoffs, resulting in vacancy rates reaching a 20-year high. As a result, investment bank strategists predict a 40% drop in commercial real estate prices and state that “more than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points.”

Bitcoin bulls may have benefited from increased demand for inflation protection, but some may have squandered the opportunity by placing size bets of $30,000 or higher.

Bulls placed 85% more bets, which did not translate to victory

The weekly BTC options expiry has $1.2 billion in open interest, but the actual figure will be lower because bulls have concentrated their bets on Bitcoin price trading above $29,000.

Bitcoin options aggregate open interest for April 7. Source: CoinGlass

The 1.85 call-to-put ratio reflects the difference in open interest between the $720 million call (buy) options and the $390 million put (sell) options. However, the outcome will be much lower as bulls were overly-optimistic.

For instance, if Bitcoin’s price remains near $28,100 on April 7 at 8:00 a.m. UTC, there will be only $125 million in call options. This distinction arises since the right to buy Bitcoin at $29,000 or $30,000 is rendered void if BTC trades below that on the expiry.

Related: Will Bitcoin break above $30K? New JOLTS data, weaker dollar boost chances

Bulls and bears have similar incentives, so the outcome is unpredictable

Below are the four most likely scenarios based on the current price action. The number of options contracts available on April 7 for call (buy) and put (sell) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $26,000 and $27,000: 300 calls vs. 6,000 puts. The net result favors the put (sell) instruments by $150 million.
  • Between $27,000 and $28,000: 1,200 calls vs. 3,500 puts. The net result favors the put instruments by $60 million.
  • Between $28,000 and $29,000: 4,500 calls vs. 1,100 puts. Bulls flip the tables and profit $100 million.
  • Between $29,000 and $30,000: 8,500 calls vs. 100 puts. Bulls’ advantage increases to $240 million.

This rough estimate considers only put options in bearish bets and call options in neutral-to-bullish trades. Nonetheless, 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 this effect is difficult to estimate.

The critical level for the weekly expiration is $28,000, but it is impossible to predict the outcome due to increased economic recession risks and market volatility. If bulls are able to secure a $100 million, those funds will most likely be used to further strengthen the support level.