Bitcoin experienced a significant drop below the $40,000 support level on January 18, marking the first time in 50 days. The upcoming $4.5 billion BTC monthly options expiry on January 26 could determine whether this downtrend will continue. Interestingly, despite Bitcoin’s decline, the U.S. stock market reached a new all-time high on January 22, suggesting that the factors affecting Bitcoin’s performance are unrelated to the macroeconomic situation.
Analysts believe that the selling pressure on Bitcoin may be coming from the Grayscale GBTC. Since its conversion to a spot exchange-traded fund (ETF) on January 11, GBTC has experienced significant outflows. Previously, investors were unable to redeem their funds from the instrument, which holds over $25 billion in assets. Bitcoin influencer @alanbwt described this situation as “the biggest blown lead in the history of Bitcoin,” as Grayscale’s GBTC started with a $27 billion capitalization on January 11, while other competitors had to start from scratch. The high 1.5% yearly administration fee imposed by Grayscale triggered the selling pressure on GBTC shares.
The decline in Bitcoin’s price since the spot ETF trading debut on January 12 coincided with the U.S. 2-year Treasury yield reaching a low of 4.12%. Investors no longer sought protection in fixed income as the yield increased to the current 4.39%. This reversal of a three-month trend is likely due to recent economic indicators suggesting that the Federal Reserve (Fed) may not shift to a less restrictive stance as quickly as expected.
The Fed’s decision to cut interest rates in the coming months depends on the fourth-quarter gross domestic product data on January 25 and the Personal Consumption Expenditures index (PCE) on inflation on January 26. If interest rates remain high, the incentives for investors to invest in commodities, such as Bitcoin, decrease compared to stocks, which often pay dividends.
Bitcoin investors will have to wait until 8:00 am UTC on January 26 to determine whether the billions of dollars worth of call (buy) options placed in anticipation of a price rally after the spot ETF approval have been wasted.
Data shows that bullish investors were overly optimistic about the spot ETF approval. The open interest for the options expiry on January 26 is $4.5 billion, but the final amount will be lower due to traders expecting Bitcoin’s price to reach $42,000 or even higher. The unexpected 15% correction in Bitcoin’s price caught bullish investors off guard, as shown by the Deribit Bitcoin options interest chart.
The put-to-call ratio on Deribit is 0.55 BTC, indicating an imbalance between the $2.42 billion in call (buy) open interest and the $1.32 billion in put (sell) options. CME Bitcoin options show a similar ratio with a total open interest of $650 million, while OKX has a more balanced ratio with a total exposure of $290 million. Bybit and Binance have a combined open interest of $290 million for the Jan. 26 BTC options expiry.
To provide some perspective, if Bitcoin’s price is $39,900 on the January monthly expiry, only $55 million worth of call (buy) options will be available. This is because the right to buy Bitcoin at $40,000 or $42,000 is worthless if the price is below that level on expiry. On the other hand, put options at $40,000 or higher amount to $270 million, giving bears an opportunity to exert short-term pressure on BTC.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research and make informed decisions when investing or trading.