Bitcoin price capitulation below $26,000 widens as BTC options expiration looms on Friday

Bitcoin (BTC) price lost momentum after failing to break the $27,500 resistance on May 15, giving the bears a better position for the May 19 expiration. The regulatory news is likely to have played a key role in reducing investor risk appetite as governments seek more control over the sector.

In a memo circulated among committee members, Democrats in the US Legislature sought to solidify the SEC’s authority over crypto. The document, released on May 10, contained the argument that nearly all digital assets are securities. In addition, according to Gensler, network nodes also violate securities laws.

The UK Finance Committee on May 17 “strongly” recommended that retail crypto trading and investing be regulated as gambling, in line with the principle of “equal risk, equal regulatory outcome.” Finance Committee Chair Harriett Baldwin described that bitcoin and ether accounted for two-thirds of the total crypto asset market cap, which she says are both “naked.”

The expiration of $735 million weekly bitcoin options on May 19 could play a crucial role in whether the price capitulates and falls below $26,000.

Bitcoin could reach a bottom in the short term

Bitcoin bears will look to take advantage of the negative regulatory environment and uncertainty created by the risk of the US Treasury “running out of funds” as the debt ceiling nears. Such a bearish scenario partially explains why some bitcoin traders have decided to reduce their exposure in recent weeks.

Four-hour Bitcoin price movements during options expiration. Source: TradingView

Bitcoin price fell 6.6% in the 36 hours before BTC options last expired on May 12, marking a short-term bottom on the 4-hour chart. More importantly, the subsequent three-day rally towards $27,500 was short-lived, supporting the thesis of bearish momentum.

Bitcoin options data shows bulls have been overly optimistic

The open interest for the May 19 option expiration is $735 million, but the actual number will be lower as the bulls focused their bets above $28,000. These traders became overly optimistic after bitcoin price surged 7% between May 12-15 and tested the $27,500 resistance.

Bitcoin options aggregate open positions for May 19th. Source: CoinGlass

The call-to-put ratio of 0.42 reflects the mismatch between the $424 million of outstanding call (buy) options and the $312 million of put (put) options contrary. However, if the bitcoin price stays near $26,500 at 8:00 UTC on May 19, only $30 million worth of these call (buy) options will be available. This difference arises because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC is trading below that level at expiry.

Related: Tether buys bitcoin based on monthly net profits

Bitcoin bulls are targeting $27,000 to level the balance

Below are the four most likely scenarios based on current price action. The number of option contracts available on May 19 for call (bull) and put (bear) instruments varies by expiry price.

The imbalance in favor of both sides represents the theoretical gain:

• Between $25,000 and $26,000: 100 calls vs. 7,800 puts. The bears are in total control and make a profit of $190 million.
• Between $26,000 and $27,000: 1,100 calls vs. 4,300 puts. The net result favors the put (sell) instruments by $80 million.
• Between $27,000 and $28,000: 2,300 calls vs. 2,000 puts. The result is balanced between put and call options.
• Between $28,000 and $29,000: 5,700 calls vs. 700 puts. The net result favors call (bull) instruments by $140 million.

This rough estimate accounts for the put options used on bearish bets and the call options used on neutral to bullish trades only. However, this simplification ignores more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin at a certain price. Unfortunately, there is no easy way to estimate this effect.

Still, traders should be cautious as the bears are currently in a better position for Friday’s weekly option expiration, favoring negative price action. Therefore, an eventual capitulation below $26,000 should not be ruled out.

This article does not contain any investment advice or recommendations. Every investment and trading activity involves risk and readers should do their own research in making their decision.

This article is provided for general informational purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.

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