As we have said on multiple occasions, selling tends to come in waves, and today seems to be no different. However, some of this selling is driven by option expiry for 5/21/2021, where $930M contracts will expire.
Options expiration spells an awful weekend for bulls
We think the bears will continue to leverage this expiry, and a lot of long call options are set to go worthless, which will wipe out a lot of traders given the -9% drop in BTC on the Friday session with BTC currently trading at $35,946 at the time of writing.
According to Marcel Pechman from Cointelegraph:
Out of the 11,872 call options, only 15% have been created using $44,000 and lower strikes. This means the remaining 85% became worthless, as there are less than 14 hours left for the weekly expiry. Therefore, the 1,850 neutral-to-bullish call options below $44,500 represent a $75 million open interest.
Marcel Pechman from Cointelegraph goes onto explain put option open interest:
“Overall, the put options at $36,000 and higher amount to $400 million in open interest. The $325 million difference favoring the more neutral-to-bearish options is a decent advantage as we approach Friday’s expiry.”
Our view: We’ve mostly been bearish on Bitcoin for the past couple weeks, as it seems the market has been extended for quite some time, and it was only a matter of time before bullish sentiment would turn negative.
Figure 1. Bitcoin Price Chart
Source: CoinMarketCap
Bitcoin continues to bleed lower heading into the Friday session, as it drops -10% from $40k to retest $36k currently. Because of the options expiry, with bears likely to earn profits on expiry, we think it’s time to anticipate a pretty awful weekend for Bitcoin holders with the coin capable of reaching $30K.
Beyond the Elon Musk tweets, it seems like a number of investment managers are also skeptical of Bitcoin, Michael Novogratz Galaxy Global Digital on CNBC mentioned, “it did feel like pretty big capitulation today, it’s not going to bounce right back it will consolidate for a while.” This was in reference to May 19th, 2021 selling.
Figure 2. Bitcoin Market Dominance
Source: CoinMarketCap
BTC dominance continues to trend lower, and it’s mainly because Bitcoin seems to be dropping a lot more quickly than some of the other coins on the market. This is a pretty negative precursor, for alt coins, as BTC dominance in the 40% range implies that it’s only going to go up eventually, and that’s primarily because alt holders eventually swap to BTC as market losses ripple further out.
Hence, BTC dominance trended up to like 60%-70% from the beginning of 2018, as the rest of the alt market more or less retreated. So, we’re starting to get to that blip, or turning point where the rest of the coins eventually drop in value, and the value of BTC goes up disproportionately in value in relation to the rest of the market.
Bears control the market currently
Given this eventuality, we think bears have wrestled control over the market for the time being, and the last bear market was from January 2018 to January 2019, which lasted the entirety of a year.
We think speculators should probably wait for a better entry point in the markets, as this retreat will continue for a lot longer than bulls might anticipate. Not to mention, the recent option expiration only adds further negative bias to market coverage, so we expect the bleeding to continue over the course of the weekend.
Disclosure: Cho Research was not compensated by any cryptocurrency foundation associated in the article titled“Bitcoin Losses to Worsen Following Option Expiration this Weekend” Though Cho Research does use the research dollars it
generates from other clients of our research service to fund market research
reports such as this. This document is not produced in conjunction with a
security offering and is not an offering to purchase securities. This report
does not consider individual circumstances and does not take into consideration
individual investor preferences. Recipients of this report should consult
professionals around their personal situation, including taxation. Statements
within this report may constitute forward-looking statements, these statements
involve many risk factors and general uncertainties around the business,
industry, and macroeconomic environment. Investors need to be aware of the high
degree of risk in micro capitalization equities, cryptocurrencies, crypto assets.
Independent equity research isn’t regulated by the SECand operates separately from more conventional sell-side equity research. Thepublication of independent equity research is unregulated and rules pertainingto published independent equity research are covered under “freedom of thepress” with legal case precedent taken all the way to theN.Y. Supreme Court to guard against libel based claims or claims of lossrelating to the publication of a report on a company. Any copyright claimrelating to infringement is covered under fair use of copyrighted materials. Sincethe use of material was derived into a separate form of analysis without anysubstantial content derived from any third-party no copyright claim can bepursued under common law. To discuss investment risk or to consider the riskspertaining to any securities it is recommended to consult a registeredfinancial advisor. To understand independent research it’s encouraged to readthis published article on independent equityresearch to become more familiar with industry standard practices and therelative value of independent equity research versus brokerage research andnews media.Cho Research, its subsidiaries, and employees may open along/short equity position at future date from the data of publication of thereport. The price per share and trading volume of subject company and companiesreferenced in this report may fluctuate and Cho Research is not liable forthese inherent market fluctuations. The past performance of this investment isnot indicative of the future performance, no returns are guaranteed, and a lossof capital may occur. Certain transactions, such as those involving futures,options, and other derivatives, can result in substantial risk and are notsuitable for all investors.