This is where options traders bet Bitcoin’s price will land after the halving

All eyes are on the Bitcoin halving, anticipated to take place on April 19.

The event will slash the supply of new coins in half at a time when spot Bitcoin exchange-traded funds have drummed up demand for the cryptocurrency — a seemingly surefire recipe for Bitcoin’s price to skyrocket.

Even though halvings are considered to be bullish events, options traders are bracing for the price of Bitcoin to plummet after the halving.

“Traders aren’t as bullish as they seem to be for April 26 considering it being right after the halving,” TzTok-Chad, founder of decentralised options exchange Stryke, which recently rebranded from Dopex, told DL News.

Positioning for the April 26 options expiry shows traders have spent $54 million on puts — bets that Bitcoin’s price will fall — according to trader tracker basedmoney.

The upcoming halving could become a buy-the-rumour-sell-the-news event, similar to how Bitcoin’s price briefly dropped after the US Securities and Exchange Commission’s approved spot Bitcoin ETFs in January, according to Mads Eberhardt, senior cryptocurrency analyst at Steno Research.

Bitcoin’s put-call ratio leans bearish

Options are financial derivatives that let traders speculate on price moves or hedge against market volatility.

Put options give holders the right, but not the obligation, to sell the underlying asset at a predetermined price, while call options let holders buy the underlying asset.

TzTok-Chad noted that the more than 33,000 puts contracts on Bitcoin’s price places the put-call ratio for the April 26 options expiry at 0.66, indicating a bearish bias.

The put-call ratio is a measurement used by investors to gauge the overall mood of a market. A higher put-call ratio — going as high as 1 — signals a more bearish outlook from options traders.

“This may be attributed to an anticipated pre-halving dump based on price action from previous cycles,” TzTok-Chad said.

Bears target $60,000

Bitcoin is now teetering around the $70,000 mark, down from its $73,000 record high in March.

The influx of bearish bets has pushed the so-called max pain price for the April 26 options expiry to $60,000. With the max pain price below Bitcoin’s current price, market makers may attempt to push the price lower before April 26.

The term max pain comes from maximum pain theory, a popular theory among options traders. It posits that the price of an underlying asset will gravitate to the price where the largest number of options contracts will expire worthless.

Options contracts expire worthless if the underlying asset’s price doesn’t meet the option’s strike price — the price the asset must trade at for the option to start making money.

The theory says that option writers will hedge the contracts they have written. As the option expiration approaches, option writers will try to buy or sell the underlying asset to drive it toward a price that is profitable for them — the max pain price.

Bulls on parade

While options positioning indicates that bears are in control in April, bets for the rest of the year show a more bullish bias.

The June 28 options expiry, the next big expiry after April 26, has a much more bullish put-to-call ratio of 0.36.

“Every other expiry seems to be heavily positioned towards the call side, notably even June, which seasonally was a slow summer month in every other market cycle,” TzTok-Chad said.

“Traders seem a lot more bullish after this month’s expiry.”

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.