The Bitcoin (BTC), price is down 37% year to date, and has not closed above $32,000 in the last fifteen days. While this may seem like a lot, it is not unusual among the top U.S.-listed technology companies that have suffered significant losses in recent months.
Within the same period, Shopify Inc.’s stock fell 76%, Snap Inc.’s stock crashed 73% and Snap Inc. was down 73%. Netflix (NFLX), Cloudflare, NET, is down 70%, and Netflix (NFLX), has a negative 62% performance.
Cryptocurrency investors need to be less worried about the “bear market”, given Bitcoin’s annualized volatility of 79%. This is not true, as Bitcoin’s Fear and Greed Index (Feel and Greed Index) reached an 8 on May 17, its lowest level since March 2020.
Fears that the macroeconomic environment will worsen could lead traders to look for refuge in Treasuries and the U.S. Dollar. The May 18 Japanese industrial production data showed a 1.7% decline year-over-year. The May 20 UK retail sales data showed a 4.9% decrease compared to 2021.
Global financial analysts blame the slow response of the U.S. Federal Reserve to the surge in inflation for the weakening market conditions. This is why traders are increasingly looking for shelter from riskier assets which has a negative impact on Bitcoin’s price.
Bulls placed the highest number of bets exceeding $40,000
Open interest in Bitcoin’s May 27th options expiry is $1.81 Billion. However, this number will likely be lower because bulls were taken by surprise when the BTC price fell 26% in the past 30 days.
Bitcoin options open interest aggregated for May 27, Source: CoinGlass
The 1.31 call/put ratio represents the $1.03 Billion call (buy) open interest versus the $785 M put (sell). However, 94% of bullish bets are likely to become meaningless since Bitcoin trades at close to $30,000.
Bulls will have only $60 million worth (buy) call options available if Bitcoin’s price falls below $31,000 on May 27. This is because a right to purchase Bitcoin at $31,000 on expiry will not be valid.
Related: Low inflation, or bust? Analysts believe the Fed is forced to keep raising rates.
On May 27, bears could make a profit of $390 million
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 (buy) or put (sell). The theoretical profit is the result of an imbalance in favor of each side.
800 calls (buy) for between $28,000 and $30,000. 14,200 puts are (sell). The net result favors bears with $390 million. Between $30,000 and $32,000, 2,050 calls are (buy) vs. 11,200 put (sell). The advantage bears enjoy is $250 million. Between $32,000 and $33,000, 5,650 calls (buy), vs. 9,150 put (sell). Bears have a net advantage of $110 million.
This rough estimate includes the bullish options and neutral-to bearish options. This oversimplification ignores complex investment strategies.
A trader might have sold a call option to gain negative exposure to Bitcoin above a certain price. Unfortunately, it’s not possible to quantify this effect.
To make $390 million profit from the expiry of the monthly options, bitcoin bears must keep the price below $30,000 by May 27. Bulls, on the other hand can reduce their losses by pushing BTC higher than $32,000. This is an 8% increase from the current price of $29,700. Bears are better placed for the May 27 expiry, according to bearish macroeconomic conditions.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.