Bullish Bitcoin options dominate May’s $6.5 billion expiry

Bitcoin (BTC) investors are typically bullish, and despite multiple failed attempts to sustain prices above $71,000, derivatives betting on $80,000 and $90,000 continue to proliferate. This behavior is driven by expectations of high-volatility events such as geopolitical tensions, socio-political changes, U.S. presidential support, and increased corporate adoption of Bitcoin.

Bitcoin bulls were overly optimistic, betting on $72,000 or higher

Bitcoin’s $6.5 billion options expiry on May 31 is no different. However, given the inability of bulls to break the $70,000 resistance over the past week, it’s likely that these excessively optimistic call (buy) options will become worthless. To illustrate, 91% of these instruments were placed at $72,000 or higher, meaning bulls were counting on a sustained rally ahead of May 31. As the deadline approaches, it seems more likely that Bitcoin bears will avoid significant losses.

Contrary to what many Bitcoin-only investors believe, BTC’s price is heavily influenced by external factors such as monetary policies, economic and inflation trends, unemployment, and confidence in the government’s ability to issue bonds successfully. Regardless of how Bitcoin temporarily correlates with the stock market and gold, investors typically hold cash positions and short-term U.S. Treasury bonds when market fear prevails.

The Nasdaq Composite index breaking its all-time high above 17,000 points on May 28 indicates that investors are more confident in the U.S. Federal Reserve’s soft landing plan. This plan aims for inflation to return to its 2% target while corporate earnings remain favorable for most sectors. This scenario creates a positive outlook for risk-on assets, including Bitcoin, as reduced interest rates are anticipated.

The overly optimistic bets for the Bitcoin monthly options expiry at 8:00 am UTC on May 31 reflect the 25% gains that occurred as BTC soared from $56,883 to $71,417 in the first 20 days of May. However, this rally did not prove sustainable, especially after the approval of the spot Ethereum exchange-traded fund (ETF) in the U.S., which creates competition for institutional investors’ funds.

Aggregate data predicts a $270 million profit for bulls if BTC trades above $70,000

To interpret the odds being placed for each BTC expiry price level, it is essential to analyze the open interest of the calls (buy) and puts (sell) instruments.

May 2024 BTC options open interest at Deribit, BTC. Source: Coinglass

Although call options dominate with a 70% higher notional value, Deribit’s $4.62 billion open interest will likely be much lower since 99% of these instruments will be deemed null if BTC trades below $70,000 on May 31. Similarly, put option investors will be disappointed if Bitcoin remains near $67,800 on the monthly expiry, as only 5% of those $1.7 billion contracts were placed at $68,000 or higher.

Deribit is the absolute leader in the options market, responsible for a 71% market share of Bitcoin’s monthly open interest in May. However, it is worthwhile analyzing the aggregate data as investors’ profiles vary among exchanges. The Chicago Mercantile Exchange (CME) is the second-largest player for May’s BTC options expiry, totaling a $745 million open interest, followed by OKX exchange with $600 million. Binance totaled a $315 million open interest, and Bybit amounted to $160 million.

Related: Semler Scientific shares up 30% after adopting Bitcoin as treasury reserve

If Bitcoin remains near $67,800 on May 31, the aggregate open interest for call options will be $135 million, while the put options open interest at $68,000 amounts to $145 million. Essentially, such a level is fairly balanced, but both bulls and bears have incentives to influence the price ahead of the expiry. For instance, a $65,900 price would favor put options by $95 million, while an expiry at $70,000 or higher would yield a $270 million advantage for call options.

With less than three days remaining until the monthly expiry, it would be surprising if bulls manage to push Bitcoin’s price above $70,000 given the lack of short-term catalysts. Therefore, the odds favor a neutral outcome near $68,000.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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