Here’s why the bears aim to keep Bitcoin below $29,000 before the $640 million BTC options expire on Friday.

Over the past nine days, the daily closing price of Bitcoin (BTC) has fluctuated in a narrow range between $28,700 and $31,300. The May 12 crash of TerraUSD (UST), the formerly third largest stablecoin by market cap, took a toll on investor confidence and the path to Bitcoin price recovery appears to be unclear after the Nasdaq Composite Stock Market Index plunged 4.7% on May 18.

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

Moreover, the recent drop in cryptocurrency prices has been costly to tap buyers (buy deals). According to Congress, liquidations totaled $457 million on derivatives exchanges between May 15 and 18.

Bulls place bets at $32,000 and above

The open interest for the May 20 options expiration is $640 million, but the actual number will be much lower because the bulls have been overly optimistic. Bitcoin’s recent dip below $32,000 has surprised buyers, with only 20% of call (buy) options placed on May 20 below this price level.

Bitcoin options collect open interest on May 20th. Source: CoinGlass

The buy to call ratio of 0.66 reflects the dominance of $385 million in open interest (sell) versus put (call) options of $255 million. However, with Bitcoin standing near $30,000, most short (sell) bets are likely to become worthless, reducing the bears’ advantage.

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

Bears may benefit from $29,000 of BTC

Here are the three most likely scenarios based on current price action. The number of options contracts available on May 20 for the buy (bull) and put (bear) instruments varies, depending on the expiration price. The imbalance in favor of each side constitutes the theoretical profit:

  • Between $28,000 and $29,000: 300 calls vs 7100 puts. Net result favors selling (selling) instruments by $190 million.
  • Between $29,000 and $30,000: 600 calls vs 5,550 puts. The net result favors the Bears with $140 million.
  • Between $30,000 and $32,000: 1750 calls vs 3700 puts. Net result favors bots by $60 million.

This crude estimate takes into account the buy options used in bearish bets and the call options exclusively in neutral to bullish trades. However, this oversimplification overlooks more complex investment strategies.

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

Bulls don’t have much to gain in the short term

Bitcoin bears need to press below $29,000 on May 20 to lock in $190 million in profit. On the other hand, the best-case scenario for the bulls would require a higher payment of $30,000 to minimize the damage.

Given that the Bitcoin bulls took in $457 million in liquidated long positions between May 15-18, they should have less margin required to push the price higher. Thus, the bears will attempt to suppress BTC below $29,000 before the options expiry on May 20th and this reduces the short-term prospects for a price recovery.

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