Bitcoin Price Struggles to Break $40K as Options Expiry Looms

Bitcoin price has been trading below the $40,000 support level for the first time in 50 days, as the market awaits the outcome of the $4.5 billion BTC monthly options expiry on Jan. 26. The event could have a significant impact on the price direction, as bulls and bears battle for dominance in a volatile market.

Some analysts believe that the main source of selling pressure comes from the Grayscale GBTC, which experienced significant outflows since its conversion to a spot exchange-traded fund (ETF) on Jan. 11. The instrument holds over $25 billion in assets, and despite being listed since 2015 in the form of a Trust fund, its investors were previously unable to request redemptions.

Bitcoin Price Struggles to Break $40K as Options Expiry Looms
Bitcoin Price Struggles to Break $40K as Options Expiry Looms

Bitcoin influencer @alanbwt described the situation on X social network as “the biggest blown lead in the history of Bitcoin,” considering Grayscale’s GBTC entered Jan. 11 with a $27 billion capitalization, while Fidelity, BlackRock, Bitwise, and the remaining contenders had to start from scratch.

However, Grayscale opted for a 1.5% yearly administration fee—far higher than its incumbents—triggering the selling pressure on GBTC shares.

Another factor that could be weighing on the Bitcoin price is the rising U.S. 2-year Treasury yield, which bottomed at 4.12% on Jan. 12 and soared to the present 4.39%, marking a reversal of a 3-month downtrend. This indicates that investors are less interested in seeking protection in fixed income, as they expect the Federal Reserve (Fed) to maintain or increase the interest rates in the near future.

The Fed’s monetary policy stance will depend on the economic indicators, such as the gross domestic product data for the fourth quarter on Jan. 25 and the Personal Consumption Expenditures index (PCE) on inflation on Jan. 26. Higher interest rates could reduce the appeal of commodities like Bitcoin, which do not pay dividends, compared to stocks or bonds.

How will the options expiry affect the Bitcoin price?

The $4.5 billion BTC monthly options expiry on Jan. 26 could be a decisive factor for the Bitcoin price, as it represents a large amount of contracts that will either be exercised or expire worthless. Options are derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price and date.

The options expiry could create volatility in the market, as traders adjust their positions to either lock in profits or avoid losses. The expiry could also influence the spot price, as some traders may buy or sell the underlying asset to hedge their exposure.

The options market is currently skewed in favor of the bears, as the put-to-call ratio, which measures the number of put options (sell) versus call options (buy), is at 0.81, according to Skew. This means that there are more put options than call options in the market, indicating a bearish sentiment.

However, this does not necessarily mean that the Bitcoin price will drop after the expiry, as some of the options may be out of the money, meaning that they have no intrinsic value and are unlikely to be exercised. Moreover, some of the options may be used for hedging or arbitrage purposes, rather than directional bets.

Therefore, the options expiry could have a mixed impact on the Bitcoin price, depending on the market conditions and the behavior of the traders. The key level to watch is $40,000, which has been acting as a strong resistance for the past week. If the bulls can push the price above this level, they could trigger a short squeeze and a rally towards $45,000. On the other hand, if the bears can keep the price below $40,000, they could induce more selling pressure and a drop towards $35,000.

What are the experts saying about the Bitcoin price?

Despite the recent correction, some experts remain bullish on the long-term prospects of Bitcoin, citing the growing institutional adoption, the limited supply, and the macroeconomic environment.

Michael Saylor, the CEO of MicroStrategy, which holds over 70,000 BTC in its treasury, said that he is not worried about the short-term fluctuations, as he believes that Bitcoin is a superior store of value than any other asset.

Anthony Pompliano, the co-founder of Morgan Creek Digital, said that he expects Bitcoin to reach $100,000 by the end of 2024, as more investors realize the benefits of holding a scarce and decentralized asset.

Cathie Wood, the founder and CEO of ARK Invest, said that she sees Bitcoin as a hedge against inflation and currency debasement, as well as a catalyst for innovation in the financial sector.

However, not everyone is optimistic about Bitcoin, as some critics point out the risks and challenges that the cryptocurrency faces, such as regulation, security, scalability, and environmental impact.

Nouriel Roubini, an economist and professor at New York University, said that Bitcoin is a speculative bubble that has no intrinsic value, no use case, and no future.

Janet Yellen, the U.S. Treasury Secretary, said that Bitcoin is a highly speculative asset that is often used for illicit purposes, and that the government needs to curtail its use and regulate it more effectively.

Warren Buffett, the chairman and CEO of Berkshire Hathaway, said that Bitcoin is a worthless delusion that attracts charlatans, and that he will never own any.

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