Investors were surprised that the price of Bitcoin (BTC) fell to $ 25,500 on May 12, and this shock reached traders. The strong correction was not limited to cryptocurrencies and some large stocks suffered 25% or more weekly losses over the same period.
Growing economic uncertainty affected members of the S&P 500 index such as Illumina (ILMN), which fell 27% over the past seven days and Caesars Entertainment (CZR) faced a 25% drop. Shopify (SHOP), one of the largest Canadian online trading companies, also saw its shares fall by 28%.
Merchants scratch their heads and ask if it is the US Federal Reserve’s austerity measures that are to blame for the instability. The monetary authorities have been raising interest rates and have also reaffirmed their plans to sell bonds and debt instruments.
While this may be the case, traders should remember that the stock market rose by 113% between 2017 and 2021, as recommended by the S&P 500 index. With that in mind, the recent downturn is also a reflection of high valuation and investor overconfidence.
Fortunately, not everything has been negative for Bitcoin. On May 10, Townsquare Media, a digital marketing and broadcasting company in New York, announced a $ 5 million Bitcoin investment. Nubank, the largest digital bank in Brazil and Latin America, also announced that it would allocate approximately 1% of its net assets to Bitcoin.
Taurus came as a surprise
The fall of Bitcoin to $ 25,500 on May 12th came as a surprise to bulls because less than 1% of pre-purchase (May) bets have been placed below this price level.
The Bulls may have been deceived by a recent attempt to reach $ 40,000 on May 4, because their bets for the $ 610 million options on May 12 are largely focused on $ 34,000.
A broader view using the 0.90 call-to-sell ratio shows a slight advantage for the $ 320 million call (sell) options versus the $ 290 million call (buy) instruments. But now that Bitcoin is below $ 30,000, most bets will be worthless.
If Bitcoin’s price stays below $ 30,000 at 8:00 UTC on May 13, only $ 1 million worth of these (buy) calls will be available. This difference occurs because there is no use in the right to buy Bitcoin at $ 30,000 if it trades below this level when it expires.
The Bears aim for a profit of 260 million dollars
The three most likely situations based on the current price action are listed below. The number of option contracts available on 13 May for buying (bull) and selling (bear) instruments varies, depending on the depreciation price. The imbalance that is favorable to each side constitutes a theoretical gain:
- Between $ 27,000 and $ 30,000: 0 calls against 9,350 parts. Net income supports the sale of bear instruments by $ 260 million.
- Between $ 30,000 and $ 32,000: 150 calls against 7,500 sets. The net profit of the bears is about 220 million dollars.
- Between $ 32,000 and $ 33,000: 1,100 calls against 5,900 sets. Net income from sales rights is $ 150 million.
This rough estimate takes into account put options used in bearish betting and call options only in neutral to bullish trades. Nevertheless, this oversimplification avoids more complex investment methods.
For example, a trader may have sold a put option and actually received a positive risk for Bitcoin above a certain price, but unfortunately this is not an easy way to assess this effect.
Bears have incentives to suppress Bitcoin prices
Bitcoin bears need to keep their price below $ 30,000 on May 13 to secure a $ 260 million profit. On the other hand, the best example of the bulls requires a 10.7% profit from the current $ 28,900 to $ 32,100 area to limit their losses to $ 150 million.
Bitcoin bulls had $ 1.73 billion in a long-term indebted position that has been wound up over the past three days, so they probably have fewer resources to push the price higher in the short term. That said, the bears are more likely to suppress BTC below $ 30,000 before options expire on May 13.
The views and opinions expressed herein are theirs alone author and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.
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