Bitcoin breaks $40,000 on Friday, but can bulls keep the momentum going to win the day's $735 million option expiration?

For the past two months, bitcoin’s price has been trapped in a falling wedge pattern, and during this period it has come close to the $37,600 support on several occasions. BTC is down 16% thus far in 2018, which aligns with the Russell 2000 performance.

Bitcoin/USD 1-day chart at FTX. Source: TradingView

Investors’ worries about worsening macroeconomic conditions are really driving Bitcoin’s current price movement. On May 3, billionaire hedge fund manager Paul Tudor Jones said that the environment for investors is worse than ever because the monetary authority is raising interest rates when financial conditions are already worsening.

On May 4, CNBC reported that the European Union had implemented new restrictions to cease Russian oil imports within six months, with EU Commission President Ursula von der Leyen noting, “This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined.”

Traders are increasingly worried about the potential consequences of a worldwide macroeconomic crisis on cryptocurrencies. Investors will seek shelter by moving away from risk-on asset classes like Bitcoin if global economies enter a recession.

The bulls didn’t anticipate that the price of bitcoin would drop below $40,000 –

The open interest for the May 6 options expiration in Bitcoin is $735 million, but the real amount will be lower owing to bears being taken by surprise as BTC dropped below $40,000.Bitcoin options aggregate open interest for May 6. Source: CoinGlass

The $405 million call open interest is opposed by the $330 million put options, giving a 1.22 call-to-put ratio. Nonetheless, as Bitcoin trades at around $39,000, most of the bullish bets will likely come to naught. Meanwhile, if Bitcoin’s price does not rise above $39,000 on May 6th, bears will have access to $100 million worth of these put (sell) options.

The Bears can expect to make a $145 million profit on Friday –

The following are the four most likely possibilities based on the current price movement. Depending on the expiry price, the number of call (buy) and put (sell) options contracts accessible May 6 is different. The theoretical profit is the difference between the two sides: Between $37,000 and $39,000: 500 calls (buy) vs. 4,300 puts (sell). The net result is in favor of bears by $145 million. Between $39,000 and $40,000: 1,200 calls (buy) vs. 2,500 puts (sell). Bears have a $50 million advantage. Between $40,000 and $41,000: 3,800 calls (buy) vs. 1,100 puts (sell). BULLS gain an additional $105 million ($190 million total ).

This rough estimate only takes into account the call options utilized in bearish bets and put options used in neutral-to-bearish transactions. Nonetheless, this oversimplification ignores more complex trading methods. A trader may have sold a call option, gaining negative Bitcoin exposure above a specific price, but there’s no simple way to calculate this impact.

The Bitcoin price must stay below $39,000 by May 6 in order to make a $145 million profit. Bulls can avoid a loss by raising the BTC price above $40,000, which is enough to gain them over $100 million. Bears appear to be better positioned for May 6’s expiry based on the negative macroeconomic factors.

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