Bitcoin (BTC) price has continued to show strength, and derivatives data suggests that bulls intend to press Bitcoin higher. On April 12, lower-than-expected U.S. Consumer Price Index (CPI) data was released, and the official inflation rate for March increased 5% year on year, which was slightly less than the 5.1% consensus. It was the lowest reading since May 2021, but is still significantly higher than the Federal Reserve’s 2% target. Despite this, Bitcoin maintained the $30,000 support, and the data suggests that inflation is no longer the driving force behind Bitcoin’s rally. Investors’ focus has shifted from the impact of inflationary pressure to potential recession risks after the banking crisis revealed how fragile the financial system was following the Federal Reserve’s twelve-month hike in interest rates from 0.10% to 4.85%.
Aside from the Silicon Valley Bank bankruptcy and the government-backed sale of Credit Suisse to UBS, several warning signs of a macroeconomic downturn have emerged. The most recent ISM Purchasing Managers Index data fell to its lowest level since May 2020, indicating an economic contraction. According to Federal Reserve documents released on April 12, the aftermath of the U.S. 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 hold off on raising interest rates, but officials affirmed that more effort is needed to keep inflation under control. According to a Moody’s Analytics report, commercial real estate prices fell 1.6% in February, the most since the 2008 financial crisis. Furthermore, the national office vacancy rate reached 16.5%, indicating the severity of the economic difficulties that businesses are currently facing.
Regardless of the reason for Bitcoin’s 50% rally between March 11 and April 11, it demonstrates resilience to FUD, including the SEC’s Wells Notice against Coinbase on March 22, and the CFTC filing a suit 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%.
Traders who have placed bearish bets using Bitcoin options are not cheering the rally. The April 14 open interest for BTC options expiry is $950 million, with $490 million in call (buy) options and $460 million in put (sell) options. Bears have been caught off guard, with less than 7% of their bets exceeding $29,000. The imbalance favoring each side constitutes the theoretical profit. The number of call (buy) and put (sell) options contracts available on April 14 varies depending on the expiry price. Between $28,000 and $29,000, the net result is balanced between call and put options. Between $29,000 and $30,000, the net result favors the call (buy) instruments by $110 million. Between $30,000 and $30,500, bulls increase their advantage to $250 million. Between $30,500 and $31,500, bulls’ advantage increases to $350 million. This rough estimate considers only call options in bullish bets and put options in neutral-to-bearish trades. Nonetheless, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a put option, effectively gaining positive exposure to Bitcoin above a certain price, but this effect is difficult to estimate.
Bulls are expected to push Bitcoin above $30,500 on April 14 at 8:00 a.m UTC to profit an additional $100 million. Bears, on the other hand, would need to pressure Bitcoin’s price below $29,000 in order to balance the scales. However, bears have recently suffered significant losses as BTC futures short contracts were forcibly liquidated to the tune of $128 million between April 9 and April 11. As the most likely scenario favors Bitcoin bulls, their profits will most likely be used to reinforce the $30,000 support. Bears might consider licking their wounds and waiting for additional actions from regulators as the macroeconomic scenario is currently bullish for supply capped assets.
In conclusion, Bitcoin’s resilience to FUD and its ability to maintain the $30,000 support, even in the face of inflationary pressure, is a positive sign for investors. The warning signs of a macroeconomic downturn and the potential for a recession later this year make Bitcoin an attractive investment option for those looking to hedge against traditional markets. However, as with any investment, there are risks involved, and investors should conduct their own research and make informed decisions.