If Bitcoin holds the $100,000 level, most bullish strategies will generate positive returns on the May and June option expirations, giving traders additional incentives to support the bullish momentum. However, there is a possibility that sellers (shorts) using the futures markets will exert their influence to prevent a new all-time high for Bitcoin.
Aggregate open interest in Bitcoin futures currently stands at $69 billion, indicating substantial demand for short positions (sells). At the same time, higher prices could force bears to close their positions. However, this “short-covering” effect is significantly attenuated in fully hedged positions, meaning those traders are not particularly sensitive to Bitcoin price movements.
For example, one could buy spot Bitcoin using margin or spot exchange-traded funds (ETFs) while simultaneously selling the equivalent in BTC futures. Known as a “carry trade,” this strategy is delta-neutral, so profit is realized regardless of price fluctuations, as monthly Bitcoin futures trade at a premium to compensate for the longer settlement period.
The Bitcoin futures premium has been below 8% for the past three months, so incentives for carry trades have been limited. Therefore, some form of “short covering” is likely to occur if Bitcoin breaks above $105,000, significantly improving the odds of a new all-time high in the coming months.