Fed suspends interest rates, but Bitcoin options data still points to lower BTC prices

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Bitcoin price has fallen below $26,300 since June 10, reflecting a 14.8% correction in two months. Meanwhile, the Nasdaq tech stock index has gained 13.6% over the same period, indicating that investors aren’t exactly fleeing to the safety of cash and short-term debt. In fact, demand for US government bonds has been declining for six weeks.

2-year US government bond yield. Source: Trading View

The yield on two-year US Treasuries, for example, fell from 3.80% on May 4 to 4.68% on June 14. If the investor believes inflation will continue above target, these participants tend to demand a higher yield when trading bonds.

The US Treasury is expected to issue more than $850 billion in new bonds between June and September. As issuing additional debt tends to lead to higher yields, the market expects higher borrowing costs for families and businesses. Still, that doesn’t explain why investors flocked to tech companies but shunned Bitcoin (BTC), as the performance of the past two months shows.

Eight straight weeks of crypto outflows

According to CoinShares’ latest digital asset fund flow report, investment product outflows from the industry totaled $88 million in the week ending June 10. The substantial drop added to the ongoing eight-week release streak, which now totals $417 million.

Eight-week cumulative cash outflows for Bitcoin reached $254 million, representing approximately 1.2% of total assets under management. CoinShares analysts attributed the trend to monetary policy considerations, as interest rate hikes show no signs of abating, prompting investors to remain cautious.

Bitcoin has been trying to reclaim the $27,500 support for the past two weeks, but it may be more difficult than expected given the upcoming $600 million weekly options expiry on June 16.

Brief Bitcoin Pump Above $27,000 Made Bulls Stunned

It should be noted that the actual open interest for options expiration will be lower since the bulls have concentrated their bets above $27,000. These traders likely became overly bullish after Bitcoin price gained 8% on June 6, erasing the losses that sent BTC crashing to $25,400.

Bitcoin options aggregate open interest for June 16. Source: Deribit

The put-to-call ratio of 0.73 reflects the imbalance between the $350 million of call (call) open interest and the $250 million of put (put) options.

However, if the Bitcoin price remains near $26,000 at 8:00 UTC on June 16, only $27 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: Bitcoin Much Bigger Than Binance or Coinbase Says Jan3 CEO: BTC Prague 2023

Bulls need Bitcoin price at $26,500 to avoid $100 million loss

Below are the three most likely scenarios based on the current price action. The number of option contracts available on June 16 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 $24,000 and $25,000: 0 calls against 6,100 puts. The Bears are in full control, profiting by $145 million. Between $25,000 and $26,500: 1,000 calls versus 4,400 puts. The net result favors the instruments of sale (put) of 100 million dollars. The net result is balanced between the purchase and sale instruments.

This raw estimate considers call options used in bullish bets and put options exclusively in neutral to bearish trades. This oversimplification does not take into account more complex investment strategies.

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 sharp correction below $25,000 should not be ruled out.

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.

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.

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