The price of Bitcoin (BTC) has been stuck below $26,300 since June 10, reflecting a 14.8% correction in two months. Meanwhile, the Nasdaq tech stock index 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, the demand for US government debt has been declining for six weeks.
The yield on 2-year US Treasury bonds, for example, went from 3.80% on May 4 to 4.68% on June 14. Lower demand for debt instruments increases payments, which translates into higher yields. If the investor thinks that inflation will continue to be above target, the tendency is for him to demand a higher return when trading bonds.
The US Treasury plans to issue more than $850 billion in new bills between June and September. As increased debt issuance often translates into higher yields, the market expects borrowing costs for households and businesses to rise. However, this does not explain why investors have flocked to tech companies but have avoided Bitcoin, as the performance of the past two months shows.
Eight consecutive weeks of cryptocurrency funds withdrawals
According to CoinShares’ latest “Digital Asset Fund Flows Report,” withdrawals from sector investment products totaled $88 million in the week ending June 10. This significant decline was added to the streak of departures that has already lasted eight weeks and now stands at USD 417 million.
Eight-week cumulative withdrawals for Bitcoin reached $254 million, representing roughly 1.2% of total assets under management (AUM). CoinShares analysts have attributed this trend to monetary policy considerations, as interest rate rises show no signs of slowing, leading investors to remain cautious.
Bitcoin has been trying to regain support at $27,500 for the past two weeks, but that could be more difficult than expected given the upcoming $600 million weekly option expiration on June 16.
A Brief Bitcoin Rally Above $27,000 Dizzys Bulls
It should be noted that the real open interest for the expiration of the options will be lower, since the bulls concentrated their bets above USD 27,000. These traders likely became overly bullish after Bitcoin’s price rallied 8% on June 6, erasing losses that led the cryptocurrency to fall as low as $25,400.
The 0.73 put to call ratio reflects the imbalance between the $350 million in call options and the $250 million in put options.
However, if the Bitcoin price sustains near $26,000 at 8:00 am UTC on June 16, only $27 million in call options will come into play. This difference occurs because the right to buy Bitcoin at $27,000 or $28,000 is worthless if BTC trades below that level at expiration.
Bulls need Bitcoin to trade at $26,500 to avoid a $100 million loss
Below are the four most likely scenarios based on current price developments. The number of option contracts available on June 16 for buy (bullish) and sell (bearish) instruments varies depending on the expiration price.
The imbalance that favors each side constitutes the theoretical benefit:
- Between $24,000 and $25,000: 0 call options vs. 6,100 put options. The bears are in full control and earn $145 million.
- Between $25,000 and $26,500: 1,000 call options vs. 4,400 put options. The net result favors sales instruments in USD 100 million.
- Between $26,500 and $27,000: 2,200 call options vs. 2,800 put options. The net result is balanced between 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.
Still, traders should be cautious as the bulls are currently in a better position for the weekly options expiration on Friday, favoring negative price moves. Thus, an eventual sharp correction below $25,000 should not be ruled out.
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