Powell’s recent announcement, the Federal Reserve Chair, of freezing interest rates isn’t diminishing the uncertainties brought by Bitcoin options data. This data hints at a possible nosedive of BTC value to $25,000.
Since June 10, Bitcoin’s value has struggled to break above $26,300, marking a drop of nearly 15% over two months. In contrast, the tech-heavy Nasdaq index enjoyed a 13.6% rise during the same timeframe, suggesting that investors aren’t solely resorting to the safe havens of cash or short-term bonds. Indeed, the appetite for U.S. government bonds has been waning over the past six weeks.
For instance, two-year U.S. Treasury yields climbed from 3.80% on May 4 to 4.68% on June 14. As interest in debt securities drops, yields, due to higher payouts, rise. If investors anticipate persistent inflation exceeding targets, they are likely to ask for higher yields when bond trading.
Between June and September, the U.S. Treasury plans to release over $850 billion in new bills. As more debt often leads to higher yields, the market is bracing for increased borrowing costs for individuals and businesses. Yet, this doesn’t completely explain why investors lean towards tech companies but keep their distance from Bitcoin, as shown by the past two months’ performance.
Uninterrupted Outflows from Crypto Funds for Eight Weeks
CoinShares’ recent “Digital Asset Fund Flows Report” discloses an $88 million withdrawal from investment products in the sector for the week ending June 10. This substantial outflow marks the eighth week in a row, totalling $417 million now.
In the past eight weeks, outflows from Bitcoin have accumulated to $254 million, approximating 1.2% of the total assets under management. Analysts at CoinShares link this outflow trend to monetary policy concerns, as continuous interest rate hikes keep investors on guard.
Bitcoin has been struggling to regain the $27,500 support level over the last fortnight. But, considering the looming $600 million weekly options expiry on June 16, this might be a more uphill task than initially thought.
Momentary Bitcoin Surge Above $27,000 Excites Bulls
It’s worth noting that the actual open interest for the options expiry will likely be lower, as bulls mainly placed their bets above $27,000. These traders might have gotten overly buoyant after an 8% jump in Bitcoin’s price on June 6, nullifying the losses that had previously forced BTC down to $25,400.
However, if Bitcoin’s price hovers around $26,000 at 8:00 am UTC on June 16, only $27 million of these call (buy) options will be in effect. This discrepancy arises as the option to purchase Bitcoin at $27,000 or $28,000 becomes redundant if BTC trades below that level when it expires.
Bulls Require Bitcoin Price at $26,500 to Prevent a $100 Million Loss
Based on the current price movement, the following are the three most probable scenarios. The quantity of options contracts (calls and puts) available on June 16 differs according to the expiry price. The balance favoring each side determines the theoretical profit:
From $24,000 to $25,000: 0 calls vs. 6,100 puts. The bears are in full command, profiting $145 million.
From $25,000 to $26,500: 1,000 calls vs. 4,400 puts. Puts (sell) instruments have an advantage, with a net result of $100 million.
From $26,500 to $27,000: 2,200 calls vs. 2,800 puts. The net result is balanced between call and put instruments.
This rough approximation considers call options as bullish bets and put options as exclusively neutral-to-bearish trades. This approach simplifies the overall scenario, neglecting sophisticated investment strategies.
However, caution is advised for traders as the bears appear to have an edge for this Friday’s weekly options expiry, indicating potential negative price movements. As such, a sharp downturn below $25,000 shouldn’t be dismissed out of hand.