Bitcoin investors are typically optimistic, continuing to bet on $80,000 and $90,000 despite multiple failed attempts to sustain prices above $71,000. This is driven by expectations of high-volatility events like geopolitical tensions, socio-political changes, U.S. presidential support, and increased corporate adoption of Bitcoin.

Bitcoin Bulls Were Overly Optimistic Betting on $72,000 or Higher

The $6.5 billion Bitcoin options expiry on May 31 is no exception. Given the bulls' inability to break the $70,000 resistance in the past week, many of the optimistic call (buy) options at $72,000 or higher are likely to become worthless. This suggests that bulls were betting on a significant rally before May 31. As the deadline nears, it appears Bitcoin bears may avoid significant losses.

Contrary to what many Bitcoin-only investors believe, BTC's price is significantly influenced by external factors such as monetary policies, economic and inflation trends, unemployment, and confidence in the government’s bond issuance. Despite Bitcoin's temporary correlations with the stock market and gold, investors tend to hold cash positions and short-term U.S. Treasury bonds during periods of market fear.

The Nasdaq Composite index hitting a new all-time high above 17,000 points on May 28 indicates investor confidence in the U.S. Federal Reserve’s plan for a soft landing. This plan aims to bring inflation back to its 2% target while keeping corporate earnings favorable across most sectors, creating a positive outlook for risk-on assets like Bitcoin, as reduced interest rates are expected.

Overly Optimistic Bets for Bitcoin Monthly Options Expiry Reflect Early May Gains

The optimistic bets for Bitcoin’s monthly options expiry at 8:00 am UTC on May 31 mirror the 25% gains Bitcoin experienced from $56,883 to $71,417 in the first 20 days of May. However, this rally was unsustainable, especially after the approval of the spot Ethereum exchange-traded fund (ETF) in the U.S., which competes for institutional investors’ funds.

Aggregate Data Predicts a $270 Million Profit for Bulls if BTC Trades Above $70,000

To understand the odds for each BTC expiry price level, it is essential to analyze the open interest of the call (buy) and put (sell) options.

May 2024 BTC Options Open Interest at Deribit, BTC. Source: Coinglass

Despite call options dominating with a 70% higher notional value, Deribit’s $4.62 billion open interest will likely decrease significantly if BTC trades below $70,000 on May 31, as 99% of these instruments would be null. Similarly, put option investors will be disappointed if Bitcoin remains around $67,800, since only 5% of the $1.7 billion contracts are placed at $68,000 or higher.

Deribit leads the options market with a 71% market share of Bitcoin’s monthly open interest in May. However, it's important to analyze aggregate data since investor profiles vary among exchanges. The Chicago Mercantile Exchange (CME) is the second-largest player for May’s BTC options expiry with $745 million in open interest, followed by OKX with $600 million. Binance has $315 million in open interest, and Bybit has $160 million.

If Bitcoin stays near $67,800 on May 31, the aggregate open interest for call options will be $135 million, while put options at $68,000 will total $145 million. This level is fairly balanced, but both bulls and bears have incentives to influence the price before expiry. For example, a $65,900 price would favor put options by $95 million, while an expiry at $70,000 or higher would give a $270 million advantage to call options.

With less than three days until the monthly expiry, it would be surprising if bulls managed to push Bitcoin’s price above $70,000 given the lack of short-term catalysts. Therefore, the odds favor a neutral outcome near $68,000.