Bitcoin has had a bumpy 2021, considering it has repeatedly surpassed its own all-time high. That is why we find it curious that although the rise has been sustained, the Bitcoin options market sees only a 12% probability that prices will rise above $ 100,000 by the end of December. Here we tell you more details about it.
The first thing to mention is that the Bitcoin options market is assigning a low probability that prices will rise above $ 100,000 this year. Certainly announcements like Tesla’s buying BTC make optimism grow, but apparently not enough for this milestone.
Options are derivative contracts that give the buyer the right, but not the obligation, to buy the underlying asset at a predetermined price on or before a specified date. A call option represents a right to buy and a put option gives the right to sell.
Why isn’t BTC expected to break above $ 100K this year?
As we already mentioned, recently the options market was pricing the 12% odds of cryptocurrency trading at seven figures before the end of December, according to data source Skew. The probability of a breakout above $ 70,000 is around 21%.
“With the extreme volatility of the last two months, the market does not show much conviction about how Bitcoin will trade for the rest of the year,” Sui Chung, CEO of CF Benchmarks, said in an interview.
It can be argued that the options market is underestimating the prospects for a strong rally, as Tesla’s bitcoin purchases have bolstered bullish expectations. Also, if history is any guide, BTC seems poised for a big move this year, having experienced its third halving. This is a scheduled 50% cut in daily broadcast, which took place in 2020.
In the past, BTC made staggering profits in the year following the year of its second halving. The cryptocurrency experienced its first and second halving in 2012 and 2016, respectively, and prices rose 5,000% and 1,300% in 2013 and 2017.
Why hasn’t the options market focused on Bitcoin?
The market’s focus has been on other large-cap currencies, especially as the positioning is very bullish on ETHUSD futures over Ether futures, which traded over $ 30 million on day one.
However, the options thing represents the expectations of the operators, which can often be incorrect. The probability that prices will rise above $ 20,000 by December 2020 remained below 10% for the first ten months of the year. However, the cryptocurrency ended up climbing as high as $ 29,000 by the end of the year.
Traders may begin to value higher odds of a move to $ 100,000 by the end of 2021 if more companies copy Tesla’s decision to invest in bitcoin, leading to a convincing break above the psychological level of $ 50,000. A breakout would signal a continuation of the $ 40,000 rally, exposing the psychological hurdle of $ 50,000.