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Possible Bitcoin Price Dip Under $26K due to Friday's BTC Options Expiry
The upcoming BTC options expiry slated for this week could heavily influence whether Bitcoin's price will plunge below the $26,000 mark.
Bitcoin's price lost momentum after its unsuccessful breach of the $27,500 resistance level on May 15, thus giving bears a favourable ground ahead of the May 19 expiry. Regulatory developments were likely a significant contributor in curbing investors' risk tolerance as governments look to tighten their grip on the industry.
SEC’s Authority Over Crypto Assets
A memo disseminated among committee members revealed that Democrats in the US legislature are pushing to consolidate the Securities and Exchange Committee’s (SEC’s) control over crypto. Publicly shared on May 10, the memo argued that nearly all digital assets are securities. Echoing SEC Chairman Gary Gensler’s stance, it suggested that even network nodes could be contravening securities laws.
UK Treasury Committee’s Take on Crypto Trading
The UK Treasury Committee on May 17 “firmly advocated” for treating retail crypto trading and investment activities as gambling, in line with the "same risk, same regulatory outcome" principle. The Treasury Committee Chair, Harriett Baldwin, painted Bitcoin and Ether, which make up two-thirds of the total crypto assets market cap, as “unbacked.”
Role of the Bitcoin Weekly Options Expiry
The weekly Bitcoin options expiry worth $735 million on May 19 may have a decisive influence on whether the price will plummet below $26,000.
Bitcoin Nearing a Short-term Bottom?
Bitcoin bears may look to exploit the negative regulatory climate and the uncertainty sparked by the imminent risk of the US Treasury “running dry” as the debt ceiling nears. This gloomy outlook partly explains why several Bitcoin traders opted to reduce their exposure over the past weeks.
Bitcoin's price dropped by 6.6% in the 36 hours preceding the most recent BTC options expiry on May 12, hitting a short-term low on the four-hour chart. The brief three-day surge towards $27,500 that followed was short-lived, supporting the idea of a bearish trend.
Over-optimism of Bitcoin Bulls Reflected in Options Data
Open interest for the May 19 options expiry stands at $735 million, but the actual figure will likely be lower since the bullish wagers are concentrated above $28,000. These traders became overly hopeful after Bitcoin’s price rose by 7% between May 12 and May 15, challenging the $27,500 resistance.
The call-to-put ratio of 0.42 mirrors the discrepancy between the $424 million in call (buy) open interest and the $312 million in put (sell) options. However, if Bitcoin's price hovers near $26,500 at 8:00 am UTC on May 19, only $30 million of these call (buy) options will remain in play. This disparity occurs because the privilege to buy Bitcoin at $27,000 or $28,000 becomes redundant if BTC trades below that threshold at expiry.
Bitcoin Bulls Targeting $27,000 to Equalize
Based on the current price trend, the following are the four most plausible scenarios. The quantity of options contracts for call (bull) and put (bear) instruments available on May 19 fluctuates according to the expiry price.
The theoretical profit is determined by the imbalance favoring each side:
- Between $25,000 and $26,000: 100 calls vs. 7,800 puts. Total bear control, profiting $190 million.
- Between $26,000 and $27,000: 1,100 calls vs. 4,300 puts. Put (sell) instruments are ahead by $80 million.
- Between $27,000 and $28,000: 2,300 calls vs. 2,000 puts. Equilibrium between put and call options.
- Between $28,000 and $29,000: 5,700 calls vs. 700 puts. Call (bull) instruments lead by $140 million.
This rough estimation assumes put options are used in bearish bets and call options are used solely in neutral-to-bullish trades. However, it overlooks more sophisticated investment strategies.
For instance, a trader could have sold a call option, essentially acquiring negative exposure to Bitcoin above a certain price. Unfortunately, quantifying this effect is challenging.
However, traders should remain vigilant as the bears currently have the upper hand heading into Friday's weekly options expiry, favoring negative price movements. As such, a possible tumble below $26,000 should not be ruled out.
