Here’s Why Bears Aim to Keep Bitcoin Below $29,000 Ahead of Friday’s $640M BTC Options Expiry

Over the past nine days, the daily closing price of Bitcoin (BTC) has fluctuated in a tight range between $28,700 and $31,300. The collapse of TerraUSD (UST) on May 12, previously the third-largest stablecoin by market capitalization, negatively impacted investor confidence and Bitcoin’s price recovery path appears clouded after the stock market index Nasdaq composite plunged 4.7% on May 18.

Disappointing quarterly results from major US retailers amplified recession fears and on May 18, shares of Target (TG) fell 25%, while shares of Walmart (WMT) plunged 17% in two days. The prospect of an economic slowdown has taken the S&P 500 index to the edge of bear market territory, a contraction of 20% from its all-time high.

Additionally, the recent decline in crypto prices has been costly to take advantage of (long) buyers. According to Coinglass, total liquidations reached $457 million on derivatives exchanges between May 15 and May 18.

The bulls placed bets at $32,000 and above

The open interest for the May 20 options expiry is $640 million, but the actual figure will be much lower as the bulls were too optimistic. Bitcoin’s recent drop below $32,000 took buyers by surprise and only 20% of the May 20 call (call) options were placed below this price level.

Bitcoin options aggregate open interest for May 20. Source: CoinGlass

The call-to-put ratio of 0.66 reflects the dominance of the put open interest of $385 million over the call options of $255 million. However, since Bitcoin sits near $30,000, most sell (put) bets are likely to become worthless, reducing the bears’ edge.

If the price of Bitcoin remains above $29,000 at 8:00 UTC on May 20, only $160 million of these put options will be available. This difference occurs because a right to sell Bitcoin at $30,000 is worthless if BTC is trading above that level at expiry.

BTC below $29,000 would benefit bears

Below are the three most likely scenarios based on the current price action. The number of option contracts available on May 20 for buy (bullish) and sell (bearish) instruments varies depending on the expiry price. The imbalance in favor of each side constitutes the theoretical gain:

  • Between $28,000 and $29,000: 300 calls versus 7,100 puts. Net income favors selling instruments (bearish) by $190 million.
  • Between $29,000 and $30,000: 600 calls versus 5,550 puts. The net result favors the bears by $140 million.
  • Between $30,000 and $32,000: 1,750 calls against 3,700 puts. The net result favors the put (bear) instruments by 60 million dollars.

This raw estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. Even so, this oversimplification fails to account for more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately there is no easy way to estimate this effect.

Bulls have little to gain in the short term

Bitcoin bears need to pressure the price below $29,000 on May 20 to secure a profit of $190 million. On the other hand, the bulls’ best-case scenario calls for a push above $30,000 to minimize the damage.

Since Bitcoin bulls had $457 million in leveraged long positions liquidated between May 15 and May 18, they should have less margin needed to drive the price higher. Thus, the bears will attempt to remove BTC below $29,000 before the May 20 options expiration, decreasing the chances of a near-term price rally.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.