Bitcoin Price Capitulation Below $26,000 Rises as Friday BTC Options Expiry Looms

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The price of Bitcoin (BTC) lost momentum after a failed break of the $27,500 resistance on May 15, putting the bears in better position for the May 19 expiry. The stream of regulatory news has likely played a key role in reducing investors’ risk appetite as governments seek to better control the sector.

In a memo circulated among committee members, Democrats in the U.S. Legislature sought to cement the SEC’s authority over crypto. The document was made public on May 10, including the argument that almost all digital assets constitute securities. Moreover, in Gensler’s view, even network nodes violate securities laws.

The UK Treasury Committee strongly recommended on May 17 to regulate crypto retail trading and investment activities as gambling, in line with the principle of same risk, same regulatory outcome. Treasury Committee Chair Harriett Baldwin described Bitcoin and Ether as representing two-thirds of the total market capitalization of crypto assets, which she says are unsupported.

The weekly Bitcoin Options expiration of $735 million on May 19 could play a decisive role in determining whether the price will capitulate by falling below $26,000.

Bitcoin Could Hit a Short-Term Low

Bitcoin bears will try to take advantage of the negative regulatory environment and the uncertainty caused by the risk of the US Treasury running out of funds as the debt ceiling approaches. Such a pessimistic scenario partly explains why some Bitcoin traders have decided to reduce their exposure over the past two weeks.

Four-hour bitcoin price movements during options expiry. Source: Trading View

The price of bitcoin was down 6.6% in the 36 hours leading up to the last BTC options expiry on May 12, marking a short-term low on the 4-hour chart. More importantly, the ensuing 3-day rally towards $27,500 was short-lived, favoring the bearish momentum thesis.

Bitcoin Options Data Shows Bulls Were Overly Bullish

Open interest for the May 19 options expiry is $735 million, but the actual figure will be lower as the bulls have concentrated their bets above $28,000. These traders became overly bullish after Bitcoin price gained 7% between May 12 and May 15, testing the resistance at $27,500.

Bitcoin options aggregate open interest for May 19. Source: CoinGlass

The call-to-put ratio of 0.42 reflects the imbalance between the $424 million in call open interest and the $312 million in put options. However, if the Bitcoin price remains near $26,500 at 8:00 UTC on May 19, only $30 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC is trading below that level at expiry.

Related: Tether to Buy Bitcoin Based on Monthly Net Profits

Bitcoin bulls target $27,000 to balance the scales

Below are the four most likely scenarios based on the current price action. The number of option contracts available on May 19 for buy (bullish) and sell (bearish) instruments varies depending on the expiry price.

The imbalance in favor of each side constitutes the theoretical gain:

Between $25,000 and $26,000: 100 calls against 7,800 puts. Bears in full control, profiting $190 million. Between $26,000 and $27,000: 1,100 calls versus 4,300 puts. The net result favors the instruments of sale (put) of 80 million dollars. The result is balanced between put and call options. Between $28,000 and $29,000: 5,700 calls versus 700 puts. The net result favors the buying instruments (bullish) by $140 million.

This raw estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. Even so, this oversimplification fails to account for more complex investment strategies.

For example, a trader could have sold a call option, thereby gaining negative exposure to Bitcoin above a specific price. Unfortunately, there is no easy way to estimate this effect.

Nonetheless, traders should be cautious as the bears are currently in a better position for Friday’s weekly options expiry, favoring negative price movements. Thus, a possible capitulation below $26,000 should not be ruled out.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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