Bitcoin ( BTC ) price has failed to close above $32,000 in the last 15 days and is down 37 percent year-to-date. While that sounds like a lot, it's no bigger drop than the largest publicly traded U.S. tech companies, which have also posted sizeable losses recently.
Over the same period, Shopify Inc. (SHOP) is down 76 percent, Snap Inc. (SNAP) is down 73 percent, Netflix (NFLX) is down 70 percent, and Cloudflare (NET) is down 62 percent.
So cryptocurrency investors shouldn't worry about the current "bear market" just yet. Because one must not forget that the annual volatility of Bitcoin is 79 percent. However, things are different at the moment, as the Bitcoin “Fear and Greed Index” reached a value of 8 out of 100 on May 17th, its lowest level since March 2020 .
Traders fear that worsening macroeconomic conditions could prompt investors to flee crypto and flee to the US dollar or government bonds. Japan's industrial production data was released on May 18, showing it fell 1.7 percent from a year earlier. Retail sales in the UK are also down 4.9 percent compared to 2021, a May 20 report said.
Financial analysts around the world attribute the weak market conditions to the US Federal Reserve's slow response to inflation. As a result, traders are increasingly turning away from risky assets and seeking protection elsewhere. Of course, this has a negative effect on the Bitcoin price.
Bulls placed most bets above $40,000
Open interest for the May 27 Bitcoin options monthly expiration stands at $1.81 billion. The actual figure is likely to be lower as bulls were surprised by the 26 percent drop in BTC price over the past 30 days.
The call to put ratio is 1.31, reflecting the open interest in $1.03 billion of call options versus $785 million of put options. Still, 94 percent of bullish bets are likely to become worthless as Bitcoin is currently around $30,000.
If Bitcoin price sustains below $31,000 on May 27, the bulls will only have $60 million worth of call options left. This discrepancy occurs because a right to buy Bitcoin at a price of $31,000 makes no sense if the rate at expiration is below that level.
Bears can claim $390 million in profit on May 27th
Below we name the three most likely scenarios based on the current price development. The number of option contracts that will be available for call and put instruments on May 27 depends on the expiry price. The site that has more below would theoretically make a profit:
Between $28,000 and $30,000: 800 calls (buy) versus 14,200 puts (sell). Net earnings come in at $390 million for the bears.
Between $30,000 and $32,000: 2,050 calls (buy) versus 11,200 puts (sell). Bears have the advantage at $250.
Between $32,000 and $33,000: 5,650 calls (buy) versus 9,150 puts (sell). The net result is $110 million for the bears.
This rough estimate assumes that call options are used on bullish bets and put options are used exclusively on neutral to bearish bets. However, this gross simplification leaves out more complex investment strategies.
For example, traders could have sold a call option and thus taken a negative risk for Bitcoin via a certain price. Unfortunately, it is not so easy to measure such strategies.
Bitcoin bears need to sustain the price below $30,000 on May 27 to reap a $390 million profit from the monthly options expiration. The bulls can at least cut their loss if they push BTC above $32,000. That would be an 8 percent increase from the current price of $29,700. However, given the bearish macro conditions, the bears have the better hand going into the May 27th expiry date.
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