The $735 million Bitcoin (BTC) option expires on May 6 and data shows that current macroeconomic conditions will continue to support the bears. Bitcoin pushes $40,000, but are the bulls strong enough to win? As Kriptokoin.com, we are providing the details…
Investors are getting worried
Bitcoin (BTC) price has remained in a descending wedge pattern for the past two months and has tested the $37,600 support multiple times during this time. In addition to this “bearish” price action, BTC is down about 16 percent since the start of the year, in line with the Russell 2000 Index (RUT) performance. The real driver of Bitcoin’s current price action is investors’ concerns about worsening macroeconomic conditions. Professional investors are concerned about the impact of the Fed’s tightening economic policies. On May 3, billionaire hedge fund manager Paul Tudor Jones said the environment for investors is worse than ever, as the monetary authority is raising interest rates as financial conditions are already worsening. On May 4, CNBC reported that the European Union is imposing new sanctions to phase out Russian crude oil imports over six months, and European Commission President Ursula von der Leyen said:
This is all Russian crude and refined. There will be a complete ban on imports of oil, sea and pipeline.
For these reasons, investors are increasingly concerned about the potential impact of a global macroeconomic crisis on the cryptocurrency markets. If global economies fall into recession, investors will seek protection by moving away from risky asset classes like Bitcoin.
What levels will Bitcoin be at after May 6?
The open interest for May 6 options expiration on Bitcoin is $735 million, but the real figure will be lower as the bulls are caught by surprise once BTC drops below $40,000. The 1.22 buy-to-sell ratio reflects the $405 million buy open interest versus the $330 million put options. However, as Bitcoin stands close to $39,000, 89 percent of bullish bets will likely become worthless. Meanwhile, if the price of Bitcoin stays below $39,000 on May 6, the bears will have $100 million worth of these sell options. This difference is due to the lack of the right to sell Bitcoin at $36,000 if it trades above this level at maturity. Below are the four most likely scenarios based on the current price action. The number of options contracts available for buy (buy) and put (sell) instruments on May 6 varies depending on the expiry price. The imbalance in favor of both parties creates theoretical profit.
- Between $37,000 and $39,000: 500 purchases and 4,300 sales. The net result supports the bears by $145 million.
- Between $39,000 and $40,000: 1,200 purchases. Selling 2,500 sales. The bears have a $50 million advantage.
- Between $40,000 and $41,000: 3,800 purchases. 1,100 sales. The net result supports the bulls with $105 million.
- Between $41,000 and $42,000: 5,300 purchases. 700 sales. The bulls have increased their earnings to $190 million.
This rough estimate takes into account call options used in bullish bets and put options used only in neutral to bearish trades. This oversimplification ignores more complex investment strategies. For example, an investor may have sold a call option, effectively gaining negative exposure to Bitcoin above a certain price, but unfortunately, there is no easy way to predict this effect. Bitcoin bears need to keep the price below $39,000 on May 6 to make a profit of $145 million. On the other hand, bulls can avoid a loss by pushing BTC above $40,000, enough to generate $100 million in gains. Bears appear better positioned for the end of May 6, given the declining macroeconomic conditions.
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