Sometimes in June, there was a very daring bet placed by some Bitcoin options traders saying bitcoin will soar through the six-figure mark by the end of 2021. This bet is outlandish because as of when the bet was being placed, bitcoin was just recovering from a 35% dip and futures charts showed bearish directions on many timeframes.
Let's look at how these traders made this bet and why.
According to the information published by Laevitas, a data analytics company for crypto market assets, one of the world's most dominant cryptocurrency options exchange, Deribit had an aggregate of 425 bitcoin call option contracts, with an expiry date of Dec. 31, and a strike price of $200,000. The strike price was five times the price of bitcoin, and even now, three months after, the price target is roughly four times the current market price.
Unlike normal purchases, a call option as a contract gives the buyer the legal right but not the compulsion to buy the mentioned asset (token) at an agreed price on or before a fixed date. The bet means that the $200,000 bitcoin option price for the call option expiring on Dec. 31 is a wager that Bitcoin will end the year above the $200,000 mark. Unlike trading a token on exchanges like Coinbase, Binance, Redot, or OKEx, buying a call option is usually cheaper. A down payment, called the premium, is made to seal the deal, and if the option goes south, the trader can choose not to exercise the option and lose only the premium instead of the full amount.
Though the trade size is small when put side-by-side with other audacious gambles Redot.com and CoinDesk have covered in times past, it is still significant because the option is a long-term bet (six months) and is far out-of-the-money (strike price is way higher than the spot price). The bet is also cheap. Costing a premium of less than $700
The call option can be likened to a gamble because of the low risk/high reward promise. The buyers only have $698 at stake but can make much more if the bitcoin price hits the $200,000 mark. This is not the first time we have seen a bet like this. Earlier this year, there was a massive rush on the $80,000 call price when the price of BTC just crossed $50,000. Bitcoin went on to hit $65,000 but dropped back massively due to increased fear and gloom. The bitcoin call option was not exercised, and the traders lost their premium. Now, there are many daring call options with $300,000 strike price and $400,000 strike price. The most prevalent ones are the $100,000 strike price.
Why would traders make a bet like this om Bitcoin's futures? Could they be right?
Reasons they may be right
Let's look beyond the social media clamor and 'To the moon' chants to see why Bitcoin to $200,000 may be feasible.
There are too many prominent people involved.
Bitcoin might not overthrow the dollar as the world's reserve currency, but there are just too many wealthy and prominent people in Bitcoin for the token to stop short of $100,000. The rallying might take it way higher to a market cap of $4 Trillion ($200,000 per Bitcoin). The run might not be sustainable, but irrespective of whether Bitcoin keeps serving as a fuel for decentralization and anonymity, which is why the minority of users use it for, some people gain from pushing the narrative for a higher market price to increase the value of their holdings.
The four-year pattern
While it's a bit too early to judge, Bitcoin seems to be forming a four-year pattern for growth. If it rallies past the $100,000 mark this year, the pattern might have been established.
There seems to be a massive appreciation with BTC prices every four years. The first four-year cycle, for example, took the price from roughly $964 in December 2013 to above $19,000 in December 2017. Like we see now, the cycle works with the price reaching new all-time highs for several months, then plummeting to almost half the price dumping unprincipled newbies and those drawn in by FOMO. It then consolidates for a while before rallying again. The same pattern, four years apart.
Reasons they may be wrong.
Crypto Market Volatility
No one can predict accurately the direction the market price will move in the short term, and predicting it would go up to $200k is more of gambling than trading. Bitcoin currently has a market cap of $1Trillion. Hitting $200k would mean the token will increase to $4Trillion. The money will have to come from somewhere. Either huge institutional buying or some unbelievable retail buying. Remember when Tesla bought $2.5billion worth of Bitcoin? If we're to move towards $200k, we'll need many buyers buying above that.
No country would want to relish the authority it has over the financial system to an anonymous token. In recent days, we've seen China place a ban on Bitcoin and Bitcoin mining activities. The future of bitcoin is heavily dependent on Europe and the United States of America. These two zones have the highest acceptance of Bitcoin, and a ban from either of them would place a weight too heavy to be borne on the other. In as much as Bitcoin is decentralized, it is still at the mercy of centralized governments. There is little evidence to suggest that no country will do anything in response to Bitcoin hitting $200,000.
It would be far-fetched to buy Bitcoin at this current price hoping it would joy $200,000 by December. Many other things look more feasible. Or do you think it would hit $200k by the end of this year? Let us know your thoughts in the comment section below.