Here's why bears want to keep Bitcoin under $29K before the $640 million BTC options expire on Friday.

Here's why bears want to keep Bitcoin under $29K before the $640 million BTC options expire on Friday.

Bitcoin is now trading at $30,000, but the $640 million in BTC options that expire on May 20 may cause the price to drop to recent lows.

Bitcoin's (BTC) daily closing price has been fluctuating in a narrow range between $28,750 and $31,400 for the past nine days. The May 12 fall of TerraUSD (UST), the third-largest stablecoin by market value, harmed investor confidence, and the route for Bitcoin's price recovery appears hazy after the Nasdaq Composite Stock Market Index fell 4.7 per cent on May 18.

Disappointing quarterly reports from major US retailers are fueling recession fears, with Target (TG) stock falling 25% and Walmart (WMT) stock falling 16.5% in two days on May 18. The possibility of an economic downturn pushed the S&P 500 Index into the bear market territory, down 20% from its all-time high.

Furthermore, leverage purchasers were hit hard by the latest bitcoin price decline (longs). Between May 15 and 18, liquidations at derivatives markets totalled $456 million.

Bulls put wagers of $32,000 or more.

The open interest for the May 20 options expiry is $640 million, but since bulls were excessively optimistic, the actual total will be significantly lower. Bitcoin's latest drop below $32,000 caught purchasers off guard, and only 20% of May 20 call (buy) options were placed below that price level.

The $385 million put (sell) open interest outnumbers the $255 million call (buy) options, resulting in a 0.66 call-to-put ratio. However, with Bitcoin nearing $30,000, most put (sell) bets are anticipated to lose value, lessening the bears' advantage.

Only $160 million worth of put (sell) options will be available if Bitcoin's price remains over $29,000 at 8:00 a.m. UTC on May 20. This is due to the fact that the right to sell Bitcoin at $30,000 is useless if BTC trades beyond that level at expiration.

Based on the present price activity, the three most likely possibilities are listed below. The quantity of call (bull) and put (bear) options contracts available on May 20 varies based on the expiry price. The theoretical profit is determined by the imbalance favouring either side:

300 calls vs. 7,100 puts between $28,000 and $29,000. The overall result is $190 million in favour of the put (bear) instruments.

600 calls vs. 5,550 puts between $29,000 and $30,000. By $140 million, the outcome favours the bears.

1,750 calls vs. 3,700 puts between $30,000 and $32,000. The overall result is a $60 million advantage for the put (bear) instruments.

This rough estimate takes into account put options in bearish bets and calls options in neutral-to-bullish trades. Despite this, more nuanced investment methods are ignored by this simplicity.