Holding BTC price below $39,000 will give bears a $350 million profit in this week’s $1.9 billion options expiry.
Up until April 25, Bitcoin (BTC) bulls had been defending the $38,000 level, but bulls were caught off-guard by the recent drop. As Bitcoin plunged from $46,700 to $37,700 between April 5 and 26, most of the bullish bets for the upcoming $1.96 billion monthly options expiry became worthless.
Regulatory concerns continue to pose a threat to Bitcoin and on April 26 the New York State Assembly passed a bill banning new proof-of-work (PoW) cryptocurrency carbon-based mining facilities in the state. Fortunately for Bitcoin, mining equipment is portable, so there's no real risk to the Bitcoin network's security but the steady threat of anti-crypto legislation can have an impact on price.
Geopolitical tension in Europe also led investors to avoid riskier assets and many are seeking protection in U.S. dollar-denominated assets. CNBC reported that the impact of Russian state energy firm Gazprom's decision to halt natural gas supplies to Poland and Bulgaria, created concerns about a deeper economic slowdown in the Eurozone region.
Investors are also obsessed with the potential U.S. Federal Reserve rate 250 basis point rate hike planned throughout 2022. The maneuver aims to contain inflationary pressure but it could spin global economies into a recession and this is another reason why investors are avoiding highly-volatile assets like cryptocurrencies.
The open interest for the April 29 options expiry in Bitcoin is $2 billion, but the actual figure will be much lower since bulls were not expecting the BTC price to drop below $40,000.
These traders might have been fooled as Bitcoin held above $45,000 between March 27 and April 6, placing enormous bets for the monthly options expiry above $50,000.Bitcoin options aggregate open interest for April 29. Source: CoinGlass
The 1.55 call-to-put ratio shows more sizable bullish bets as the call (buy) open interest stands at $1.19 billion against the $770 million puts (sell) options. Nevertheless, as Bitcoin stands near $39,000, most bullish bets will likely become worthless.
For instance, if Bitcoin's price stays below $40,000 at 8:00 am UTC on April 29, only $60 million worth of these calls (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $40,000 if it trades below that level on expiry.
Below are the three most likely scenarios based on the current price action. The number of options contracts available on Friday for call (buy) and put (sell) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:
This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards 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's no easy way to estimate this effect.
Bitcoin bears need to pressure the price below $39,000 on April 29 to secure a $350 million profit. On the other hand, the bulls' best case scenario requires a 6% price push above $41,000 to cut their losses to $30 million.
Bitcoin bulls had $330 million leverage long positions liquidated in the past 7 days, so they might have less margin required to drive Bitcoin price higher. With that in mind, bears will likely try to suppress BTC below $39,000 until the April 29 options expiry.
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