Crypto Options Traders Target $50,000 Bitcoin Price For Next Year

Will bitcoin price cross $50,000 in the next year?

Some bullish investors seem to think so and have purchased options to back up their claim. According to a WSJ report, an unidentified investor has bought 30 options worth approximately $4,500 expiring in June 2020. The options have a strike price of $50,000. In simple words, this means that the investor is betting that the price of Bitcoin will reach or surpass $50,000 before next June. If it does reach the investor’s target price, they have the right to buy the underlying asset (in this case, bitcoin) at that price point. If Bitcoin fails to reach $50,000, the options will expire worthless. A call option is essentially a bet that the price of a security will hit a price within a certain timeframe.

The options bet on Bitcoin price was placed at LedgerX, a cryptocurrency exchange. The most popular strike price for Bitcoin at the exchange is $25,000, according to Juthica Chou, the exchange’s co-founder. At another Amsterdam-based exchange, Deribit, the most popular call options for Bitcoin during the same timeframe are $36,000. Chou from LedgerX tweeted last week that the current trade in bitcoin options implied that there was a 70% chance that its price would hit $10,000 in June.

As of this writing, Bitcoin is changing hands at $8,486.89, down 2.15% from twenty-four hours ago. It has been on a bull run recently and has jumped by 46% in the last month.

Will Bitcoin Price Increase?  

This is not the first time that price increases have spurred higher strike price values for bitcoin options. At the height of a surge in cryptocurrency markets in 2017, Ari Paul, founder of Blocktower Capital, bet on the same price target – $50,000 – by December 2018 for Bitcoin. According to reports, Paul’s firm spent approximately $1 million on the trade. “These calls are a way for me to capture the upside exposure while owning less Bitcoin…they let me capture upside while reducing my downside risk,” he explained to CNBC.

But Bitcoin price crashed by more than 80% next year, netting a loss for Paul. One can only presume that the loss was not substantial since an options contract is essentially a bet and does not require ownership of the underlying asset. In most cases, the loss is limited to the premium and trading commission fees paid to an exchange.  

In several instances, the markets for derivatives, such as options, can be precursors of price movements in securities. But the relationship between the two has tenuous evidence within the Bitcoin market. While analysts have often referred to a relationship between Bitcoin futures and cryptocurrency markets, evidence regarding the same is still unproven.