It’s been twenty – three days since bitcoin (BTC) closed over $ 32,000 and the 10% rally that took place on May 29-30 is currently evaporating with the price of BTC reversing around $ 30,000. The return of $ 30,000 only confirms the strong correlation with traditional assets. In the same period, the S&P 500 fell 0.6%.
Decreasing corporate earnings could put pressure on the stock market due to rising inflation and upcoming U.S. Federal Reserve interest rate rises, according to Citi’s strategist Jamie Fahy. As Yahoo! Finance, Citi’s research note for clients, said:
“Basically, despite concerns about the recession, earnings per share have barely changed direction for 2022/2023. »
In short, the investment bank expects macroeconomic conditions to deteriorate in order to reduce corporate earnings and, in turn, cause investors to revalue the stock market lower.
According to Jeremy Grantham, co – founder of GMO and key investment strategist, “we should be in a recession of some kind relatively quickly, and profit margins are far from shrinking from a real spike.”
As the correlation with the S&P 500 remains extremely high, bitcoin investors fear a repeat of the $ 28,000 level will lead to a possible downturn in the stock market.
Correlation measurements range from negative 1, (meaning the selected markets are moving in opposite directions) to positive 1 (indicating perfect, symmetrical movement). A difference or lack of relationship between the two assets would be denoted by 0.
Currently, the 30-day correlation between the S&P 500 and bitcoin is 0.88, which has been the norm for a few months.
Bearish bets are mostly under $ 31,000
Bitcoin’s recovery of over $ 31,000 on May 30 surprised me, as only 20% of the options placed for June 3 were above such a price level.
The recent $ 32,000 resistance test may have hit Bitcoin bulls and up to $ 50,000 has been pledged for the $ 825 million options expiration.
A broader view using the call-to-put ratio of 0.77 shows more bearish bets as open interest for put options than $ 465 million vs $ 360 million for calls (call). However, with bitcoin currently surpassing $ 31,000, most bearish bets are likely to go worthless.
If the bitcoin price stays above $ 31,000 on June 3 at 8 am UTC, these options will only be available for up to $ 90 million. This difference is explained by the uselessness of a right to sell bitcoin for $ 31,000 if it is trading above that expiring level.
The Bulls could pocket a $ 160 million profit
Below are the four most likely scenarios based on the current price action. The number of option contracts available on June 3 for call (bullish) and put (bearish) instruments varies depending on the expiration price. Inequality in favor of all sides equals theoretical profit:
- Between $ 29,000 and $ 30,000 : 1,100 calls against 5,100 put. The net result in favor of the bears is about $ 115 million.
- Between $ 30,000 and $ 32,000 : 4,400 call options compared to 4,000 call options. Net revenue is balanced between call (buy) and put (sell) instruments.
- Between $ 32,000 and $ 33,000 : 6,600 calls per 1,600 put. The net result is $ 160 million for the bulls.
- Between $ 33,000 and $ 34,000 : 7,600 call options for 800 send options. The bulls extend their gains to $ 225 million.
This crude estimate evaluates the call options used in bullish bets, and puts options in exclusively neutral with bearish trades. Nevertheless, this oversimplification does not take into account more complex investment strategies.
Bears need a smaller margin to deduct the price of bitcoin
Bitcoin Bears must push the price below $ 30,000 on June 3 to make a profit of $ 115 million. On the other hand, the best case scenario for the bulls requires a pressure of over $ 33,000 to increase their gain to $ 225 million.
However, Bears liquidated $ 289 million in short leverage positions on May 29, according to data from Coinglass. So they need less space to push the price down in the short term.
Under these conditions, the most likely scenario is a pullback, which would bring the price of bitcoin close to $ 31,000 before the options expire on June 3rd.
The views and opinions expressed herein are those of the author and do not necessarily represent those of Cointelegraph. All business investments and transactions involve risk. You should do your own research before making a decision.