The daily closing price of Bitcoin (BTC), fluctuated between $28,700 to $31,300 over the past nine days. Investor confidence was negatively affected by the May 12 collapse in TerraUSD (UST), which was previously the third largest stablecoin market cap. The path to Bitcoin’s price recovery appears cloudy after the Nasdaq Composite Stock Market Index fell 4.7% on May 18.
Recession fears are growing stronger as disappointing quarterly results from the top US retailers increase. Target (TG), which dropped 25% on May 18, and Walmart (WMT), fell 17% in just two days. S&P 500 Index edged into bear market territory due to fears of an economic slowdown. This is a 20% decline from its peak.
The recent drop in crypto prices was also costly for leverage buyers (longs). Coinglass reports that the sum of all liquidations at derivatives exchanges reached $457 million between May 15-18.
Bulls placed wagers of $32,000 or more
Open interest at the May 20 options expiry date is $640million, but this number will likely be lower because bulls were too optimistic. Buyers were taken by surprise when Bitcoin dropped below $32,000. Only 20% of the call (buy), options for May 20 were placed below that level.
Bitcoin options have an aggregated open interest of May 20. Source: CoinGlass
The ratio of 0.66 calls to put reflects the dominant role of the $385million open interest in the put (sell) and $255 million options in the call (buy). However, Bitcoin is close to $30,000 so most put (sell bets) are likely to lose value, which will reduce bears’ advantage.
These put (or sell) options will not be available if Bitcoin’s price is above $29,000 on May 20 at 8:00 UTC. This is because a right of selling Bitcoin at $30,000 on expiry will be worthless if BTC trades higher than that amount.
Bears would be benefited if they had a BTC price of less than $29K
Based on current price action, the following are the most likely scenarios. The expiry price will determine the number of options contracts that are available for call (bull) or put (bear), depending on which instrument is being traded. The theoretical profit is the result of an imbalance in favor of each side.
300 calls for between $28,000 and $30,000 vs. 7,100 put. The net result favors bear (or put) instruments by $190million. Between $29,000 and $30,000, 600 calls vs. 5,550 put. The net result favors bears $140 million. Between $30,000 and $32,000, 1,750 calls vs. 3700 puts. The put (bear), instruments are favored by $60 million.
This rough estimate includes the put options in bearish bets as well as the call options in neutral-to bullish trades. This oversimplification ignores complex investment strategies.
A trader might have sold a put option to gain exposure to Bitcoin above a certain price. Unfortunately, it’s not possible to quantify this effect.
The short-term gains for bulls are very limited
To secure $190 million in profits, bitcoin bears must keep the price below $29,000 by May 20. To minimize the damage, however, the bulls need to push the price above $30,000 in the best case scenario.
Given that Bitcoin bulls held $457 million worth of leveraged long positions between May 15th and 18, they should have less room to push the price higher. BTC will be suppressed below $29,000 by bears before the May 20 options expire, which decreases the chances of a price recovery in the short-term.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.