Bitcoin (BTC) investors are generally optimistic, and derivatives betting on $80,000 and $90,000 continue to surge despite several failed attempts to keep the price above $71,000. This behavior is driven by expectations of volatile events, such as geopolitical tensions, socio-political changes, US presidential endorsements, and increased corporate adoption of Bitcoin.
Bitcoin bulls were overly optimistic and bet above $72,000.
Bitcoin’s $6.5 billion options expiring May 31 are no different. However, considering the bulls’ failure to break the $70,000 resistance over the past week, overly optimistic call options are likely to become worthless. For example, 91% of these items were placed at $72,000 or more. This means bulls are expecting a continued rally ahead of May 31st. As the deadline approaches, Bitcoin bears seem more likely to avoid significant losses.
Contrary to what many Bitcoin-only investors believe, the price of BTC is heavily influenced by external factors such as monetary policy, economic and inflation trends, unemployment rates, and confidence in the government’s ability to successfully issue bonds. Regardless of how Bitcoin temporarily relates to the stock market and gold, investors typically hold cash positions and short-term U.S. Treasury bonds when market fears prevail.
On May 28, the Nasdaq Composite Index surpassed 17,000 points, reaching a new all-time high, indicating that investors are becoming more confident in the U.S. Federal Reserve’s (Fed) soft landing plan. The plan aims to return inflation to the 2% target and ensure corporate profits remain healthy in most sectors. This scenario presents a positive outlook for risk assets, including Bitcoin, as interest rate cuts are expected.
The overly optimistic bet on Bitcoin monthly options expiring at 8 a.m. UTC on May 31 reflects the 25% gains made as BTC surged from $56,883 to $71,417 over the first 20 days of May. However, this rally has not proven sustainable, especially after the approval of a spot Ethereum exchange-traded fund (ETF) in the US, which has created competition for funds from institutional investors.
Aggregated data predicts bulls’ profits of $270 million if BTC trades above $70,000.
To interpret the probability for each BTC expiration price level, it is essential to analyze the open interest of call (buy) and put (sell) instruments.
Call options dominate with a 70% higher notional value, but Deribit’s $4.62 billion open interest will be much lower as 99% of these instruments will be considered void if BTC trades below $70,000 on May 31. Bitcoin will remain near $67,800 at month’s expiration as only 5% of the $1.7 billion contracts have been placed above $68,000.
Deribit is the absolute leader in the options market, accounting for 71% market share of Bitcoin monthly open interest in May. However, since investor profiles vary across exchanges, it is worthwhile to analyze aggregate data. The Chicago Mercantile Exchange (CME) was the second-largest participant in May BTC options expirations, with a total open interest of $745 million, followed by the OKX exchange with $600 million. Binance’s open interest totaled $315 million, and Bybit’s reached $160 million.
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If Bitcoin remains near $67,800 on May 31, total open interest in call options would be $135 million, and open interest in put options at $68,000 would be $145 million. Essentially, these levels are fairly balanced, but both bulls and bears have incentives to influence the price before expiration. For example, if the price is $65,900, a put option has a $95 million advantage, and if the maturity is above $70,000, a call option has a $270 million advantage.
With less than three days left until the month expires, it would be surprising if the bulls push Bitcoin price above $70,000 given the lack of near-term catalysts. Therefore, the odds favor a neutral outcome closer to $68,000.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.