Bitcoin (BTC) price has failed to rise above $32,000 in the past fifteen days and is currently down 37% year-on-year. While this may seem extreme, it does not stand out among some of the largest listed tech companies in the US, which have experienced notable losses recently.
In the same 15-day period, Shopify Inc. (SHOP) stock fell 76%, Snap Inc. (SNAP) fell 73%, Netflix (NFLX) fell 70%, and Cloudflare (NET) performed 62% negative.
Cryptocurrency investors should worry less about the current “bear market” considering Bitcoin’s 79% annual volatility. This is not the case, however, as Bitcoin’s “Fear and Greed Index” hit 8 out of 100 on May 17, the lowest level since March 2020.
Traders fear that worsening macroeconomic conditions may cause investors to seek refuge in US dollars and Treasury bonds. Japan’s industrial production data, released on May 18, contracted by 1.7% year-on-year. In addition, May 20 retail sales data from the UK showed a 4.9% decrease compared to 2021.
Financial analysts around the world attribute the weakening market conditions to the US Federal Reserve’s slow response to the rise in inflation. As such, traders are increasingly seeking shelter outside of riskier assets that negatively impact the Bitcoin price.
Bulls put most bets above $40,000
The open interest on Bitcoin for May 27 options expiration is $1.81 billion, but the real figure will be lower as the bulls are taken by surprise as the BTC price has dropped 26% in the last 30 days.
The 1.31 call-to-sell ratio reflects a $1.03 billion call (buy) open position against $785 million put (sell) options. However, 94% of bullish bets will likely be worthless as Bitcoin is currently trading around $30,000.
If the price of Bitcoin stays below $31,000 on May 27, the bulls will only have $60 million worth of these call (buy) options. This difference is due to the lack of the right to buy Bitcoin at $31,000 if it trades below this level at maturity.
Related: Low inflation or collapse: Analysts say Fed has no choice but to keep raising rates
Bears could make $390 million profit on May 27
Below are the three most likely scenarios based on the current price action. The number of option contracts that can be exercised on May 27 for call (buy) and put (sell) instruments varies according to the expiry date. The imbalance in favor of both parties creates theoretical profit:
- Between $28,000 and $30,000: 800 calls (purchases) etc. 14,200 sales (sells). The net result supports the bears by $390 million.
- From $30,000 to $32,000: 2,050 calls (purchases) etc. 11,200 sales (sells). The bears have a $250 million advantage.
- From $32,000 to $33,000: 5,650 calls (purchases) etc. 9,150 sales (sells). The net result supports the bears by $110 million.
This rough estimate takes into account call options used in bullish bets and put options used only in neutral to bearish trades. Even so, this oversimplification ignores more complex investment strategies.
For example, a trader 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 $30,000 on May 27 to make $390 million in profits from the expiration of monthly options. On the other hand, the bulls can cut their losses by taking BTC above $32,000, an 8% increase from the current price of $29,700. However, judging by the bearish macroeconomic conditions, the bears seem better positioned for the end of May 27.
The views and opinions expressed herein are solely Writer and may not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.