Chapter 1: Understanding Bitcoin Price Probabilities

Every few months, I conduct an analysis of Bitcoin price probabilities to forecast a realistic range for its future value. This data not only helps in setting realistic expectations but also aids in managing emotions that can be swayed by the prevailing narratives in the crypto space, particularly from YouTube and Twitter. The information extracted serves as a framework for identifying potential market peaks and troughs, guiding decisions on when to adjust positions. I hope this approach proves beneficial for you as well.

The insights derived from options are grounded in mathematical models, specifically the Black-Scholes Model, which is commonly used in finance to evaluate options. This model requires five key variables: volatility, current asset price, time until expiration, and the price of the option contract to calculate future price probabilities.

Engaging with options trading is fundamentally a game of probabilities, not unlike poker. Coming from an options trading background, this methodology is my go-to strategy.

Let’s delve into a straightforward analysis of Bitcoin’s price outlook for the next 60 days based on the data from Bitcoin options contracts. Please bear in mind that this information is probabilistic rather than definitive.

Using the March 26 Bitcoin Options Expiration:

• The 55k put option indicates a 71% chance of BTC closing below 55k.
• The 40k call option suggests a 66% chance of BTC closing above 40k.
• Max pain is pegged at 50k.
• The 90k put option implies a 96% likelihood of Bitcoin finishing below 90k.
• The 25k call option shows a 95% chance of Bitcoin ending above 25k.

The options market estimates a 69% probability that Bitcoin will settle between 40k and 55k on March 24, 2022, and a 95% chance it will close between 25k and 90k.

Chapter 2: Technical Analysis and Market Sentiment

In addition to the options data, let’s examine other technical indicators:

• Bitcoin has been on a downward trajectory since November 9, 2021.
• Strong support is evident around the 40–42k range.
• Resistance is notable at 50k, with max pain also situated at this level.
• On-chain metrics hint at a potential "short squeeze" scenario.

Conclusion

Max pain is likely to draw price action towards 50k, necessitating a 16% rise in Bitcoin's price over the next 60 days.

Moreover, anticipated macroeconomic events will play a crucial role in shaping market dynamics in the upcoming months. The core inflation report due tomorrow is particularly significant for all markets. A rise in inflation may compel the Federal Reserve to maintain its aggressive rate hikes and bond tapering strategy, potentially leading to a bearish trend in crypto markets as they are perceived as "risk-on" assets. Conversely, a substantial decrease in inflation would be favorable for the equities market, especially for the volatile crypto and tech sectors.

Today's modest bullish retracement has kept market sentiment intriguing. Are we witnessing the groundwork for a strong rebound, or are bearish traders accumulating liquidity for another price decline?

I lean towards optimism for a couple of reasons: I don't foresee the FED making rapid adjustments to the markets, and the on-chain metrics suggest a bullish sentiment, signaling that well-prepared traders are gearing up for a potential upward movement.

Time will reveal the outcome.

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Crypto Market Update

Bitcoin (BTC) showed a slight rebound today after a week of declining prices, with the 42k support level holding firm. A re-test of significant support levels appears likely.

Bitcoin Dominance (BTC.D) dropped by 1.08% during this bullish surge, as traders shift towards Ethereum and other altcoins in search of higher returns.

Ethereum (ETH) climbed by 4.86%, and Ethereum Dominance (ETH.D) increased by 1.57%.

Top Notable Gainers

• Oasis Network (ROSE): +22% following Binance Labs' investment of $200M.
• NEAR: +18%
• MATIC: +15%
• FTM: +15%
• ONE: +13%
• DOT: +10%
• KSM: +10%

Interestingly, all assets on the top gainers’ list today were highlighted in the Electric Capital Report I summarized in yesterday's newsletter.

Bitcoin Fear and Greed Index: 21 (Extreme Fear)

"Bitcoin" Google Trends: 37 (+4)

Bitcoin Options Max Pain (Jan 20): 37K

Major Crypto News

A recent JPMorgan poll revealed that 5% of their clients believe Bitcoin could reach 100k in 2022. However, it’s worth noting that the average age of respondents was likely over 60, which may skew the results.

The Central Bank of Iran and the Ministry of Trade have agreed to utilize the CBI's payment platform, allowing businesses to settle transactions with cryptocurrencies. This development is a small but significant step towards global Bitcoin adoption.

A report by Certik (CTK) on the state of DeFi indicates that centralization issues remain the most prevalent attack vector.

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