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Bitcoin Options Investors Are Starting to Hedge Against Potential Price Pullback

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Bitcoin’s options market data shows investors are beginning to position for a temporary retreat from the cryptocurrency’s steep bull run.

The one-month implied volatility, which is influenced by the demand for call and put options, jumped from roughly 55% to a four-month high of 70.5% in the past two days, suggesting increased expectations for price turbulence over the next four weeks.

The one-month gauge is currently seen at 65%. Implied volatility metrics for longer durations have also recovered from recent lows.

Alongside that, the negative spread between the cost of puts (bearish bets) and calls (bullish bets) has eased, as evidenced by the recovery in the one-, three- and six-month put-call skews. Notably, the one-month gauge bounced from -27% to -14%, according to data source Skew.

These numbers indicate increased demand for put options – a sign of investors hedging against a potential price pullback. While call buying can and does cause a rise in implied volatility metrics, in this case, the put-call skew has recovered alongside the pick up in volatility, suggesting a rise in demand for puts.

Validating that assessment is the tweet by Deribit Insights, which says institutions have bought put options. That does not necessarily imply a bearish bias but could be a hedging strategy against a long or bullish position in the spot market.

Options are derivative contracts that give the purchaser the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy, and the put option represents the right to sell. Implied volatility, a key component in calculating the price of an option, is the expected standard deviation of returns over a selected period and is expressed in annualized terms.

Fears of a deeper drawdown in bitcoin’s price and demand for puts looks to have been fueled by the volatile price action seen in the past 36 hours. Bitcoin rose as high as $18,358 during Wednesday’s Asian trading hours only to make a quick retreat to $17,200. That has seen volatility spike and the put-call skew rise, as traders hedge their bullish sentiment with puts, according to Shaun Fernando, head of risk and product at cryptocurrency exchange Deribit.

The renewed interest in the put options comes following bitcoin’s recent vertical rally from $10,000 to above $18,000. The cryptocurrency has seen multiple corrections of more than 20% in the previous bull markets. This time, a bull market correction has remained elusive, possibly due to a supply deficit in the market.

However, the uptrend may now lose some momentum, according to technical studies.

Both the long upper wick attached to Wednesday’s indecisive candle and the above-50 reading on the relative strength index indicate bull fatigue. “The cryptocurrency may face some selling pressure if the prices end (UTC) Thursday below lows near $17,100 seen Wednesday,” Patrick Heusser, a senior cryptocurrency trader at Zurich-based Crypto Broker AG, told CoinDesk.

The broader trend remains constructive with the three- and six-month put-call skews reporting negative values and macro factors aligned in favor of scarce assets like bitcoin.

At press time, the cryptocurrency was trading at $17,977, according to The CoinDesk 20.





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MicroStrategy Buys the Dip, Adds $10M to Bitcoin Treasury

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CEO Michael Saylor bought the coins for an average price of $31,808.



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Russia’s Sber Bank Files to Launch Its Own Stablecoin

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Sber, Russia’s largest retail bank, has applied for a license with the country’s central bank to issue its own digital token for corporate clients.

The digital asset will be available for the companies banking with Sber, which have been expressing interest for blockchain-based deals for some time, a spokesperson from the bank told CoinDesk via email.

“This stablecoin will allow companies to use smart contracts on Sber’s platform based on the Hyperledger Fabric blockchain. Tokenizing both material goods and fiat money on this platform will allow transactions to be fully automatic,” the Sber press office said.

The digital token will not be a cryptocurrency, but instead “a tokenized form of the rubles the companies hold on their Sber accounts,” they said. “Just like money on a bank account, but running on a different tech infrastructure.”

Sber Deputy Chairman Anatoly Popov told the Interfax news agency on Friday that bank applied to register its blockchain platform with the Bank of Russia at the beginning of this month. According to Russia’s law on digital assets, which came into force Jan. 1, 2021, all centralized issuers of digital assets in Russia must register with the regulator.

According to Popov, the registration process takes up to 45 days, after which Sber expects to receive either approval or comments and requests from the central bank. If the projects gets the green light, it’s expected to launch some time this spring. One possible challenge might be the lack of clarity regarding taxation of digital assets in Russia, he said – detailed regulation for which is yet to be passed.

Sber launched its Hyperledger Fabric-powered blockchain platform last summer and aired plans to launch its own digital token at the time. The bank has been consistently active in the blockchain space, participating in a number of pilots involving securities on a blockchain.

Russia passed its first law regulating digital tokens last fall, detailing the criteria and regulation process for companies that want to issue digital assets for the Russian market. It also mentions cryptocurrencies that have no entity controlling them, like bitcoin, which are recognized as property, are subject to taxation and can’t be used to pay for goods and services.

Non-qualified investors in Russia can not purchase more than 600,000 rubles (about $7,740) worth of digital assets in one year, according to a Bank of Russia directive issued in December.

Sber, recently rebranded from Sberbank, is the first Russian mainstream company that has publicly announced an application for a digital asset registration with the central bank. The Bank of Russia itself has been exploring the possibility of launching a Russian ruble-backed central bank digital currency (CBDC), the digital ruble.



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Ethereum’s Road to $2K: 3 Reasons to Be Bullish

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Ethereum, the second-largest cryptocurrency by market capitalization, set a new all-time high of $1,439.33. This is the first time the digital asset has been over the $1,400 level since Jan. 13, 2018. Ethereum’s YTD gains now total 66.15% – over 6x higher than the leading cryptocurrency and outstripping both Polkadot (DOT) and Chainlink (LINK). Despite experiencing a temporary correction, it is still one of the strongest performers among the top 10 assets.

While there were no obvious fundamental catalysts to spur the rise to a new all-time high, ether had been close to breaking the key level for over two weeks after climbing to $1,350 on Jan. 10. The exponentially growing market for decentralized finance, known as DeFi – which now holds over $24 billion worth of crypto assets in its protocols – was also a likely contributor to the bullish momentum behind the asset.
Now, with Ethereum heading closer towards uncharted territory, all eyes will be on the second-largest cryptocurrency hitting its next major milestone, the psychological $2,000 mark. This fabled level is more than a 50% gain away from the current price (at press time), but there are 3 major events scheduled to go live in 2021 that could help make this possible.

1. CME Ethereum Futures

The world’s largest derivatives platform, the Chicago Mercantile Exchange (CME), publicly announced on Dec. 16 its plans to launch Ethereum futures by Feb. 8, provided it receives regulatory approval from the U.S. Commodity Futures Trading Commission (CFTC). Derivatives are essentially trading contracts that allow investors to bet on the future price of an underlying asset without having to actually own it.

This new cash-settled financial product – which means any profits made will be paid out in US dollars as opposed to ether – comes three years after the exchange launched bitcoin futures, which is now the world’s most traded bitcoin futures product and accounts for over 20% of all open contracts.

The arrival of Ethereum futures will ultimately bring more maturity to the crypto market and, although futures are not physically delivered, greater liquidity. This is beneficial because it will give institutional investors in particular the opportunity to hedge spot positions, which reduces overall risk and in turn makes Ethereum a much more attractive investment. 

2. Ether Burning and Predictable Fees

Any action carried out on Ethereum-based decentralized applications (dapps) or protocols are treated as transactions, which require a fee attached to them to encourage miners to process them.
Right now, transaction fees are determined via an auction-style system where users who attach the highest fees to their transactions get them processed the quickest by miners. This system causes a number of issues, namely unpredictable and often extremely high fees during periods of heavy congestion. Network congestion arises whenever there’s a spike in trading activity. For example, if ethereum’s price changes sharply and thousands of traders suddenly want to enter or exit the market around the same time. 

EIP 1559 is an Ethereum Improvement Proposal put forward by the project’s co-founder Vitalik Buterin, along with developers Eric Corner, Ian Norden, Rick Dudley, and Matthew Slipper, to implement changes to the way ether transaction fees are presented to users, as well as the management of ethereum’s supply.
EIP 1559 suggests scrapping the current auction-style fee system in favor of an algorithmically determined base cost, called the “BASEFEE.” The BASEFEE aims to introduce a uniform fee across all ethereum-centric platforms and services that rises and falls depending on network activity. This means no more fee discrepancies between ERC-20 compatible wallets, protocols, and exchanges.
The EIP does, however, include an option for users to tip miners should they want their transaction processed faster.
The second function of EIP 1559, and the one that will likely have the greatest impact on Ethereum’s future price, is the introduction of burning ether.
Burning means completely removing tokens from existence, causing a reduction in the circulating supply. EIP 1559 plans to burn the BASEFEE so the vast majority of the ether used to process transactions is destroyed as opposed to being given to network validators. 

The idea is this will encourage the steady deflation of ether, which, in turn, should help bolster prices over time. 

The EIP is anticipated to go live sometime after the Berlin hard fork, which could be as early as February.  

3. Ethereum 2.0 Phase 1 Rollout

Ethereum is in the process of transitioning from a Proof-of-Work blockchain to one that operates using a Proof-of-Stake consensus mechanism, with the goal of becoming a faster, more efficient, and more scalable platform. There are four separate phases to the Ethereum 2.0 upgrade – Phase 0, Phase 1, Phase 1.5 and Phase 2 – each laying the technical foundation for the next until the final phase is completed.

Phase 0 went live on Dec. 1, 2020, and saw the implementation of the Beacon Chain – a new blockchain layer that will coordinate activity between individual Ethereum shard chains.

Phase 1 is the next stage in Ethereum’s development and will see the launch of 64 shard chains. All transaction activity across the network will eventually be divided among and processed by these separate blockchains. The benefits of this new system will be that transactions won’t need to be validated by the entire network, only by a single shard chain. This will greatly reduce the time it takes to confirm transactions, and it means the overall network will be capable of handling significantly higher volumes without suffering the level of congestion it currently does.

While there is no confirmed date for the launch of Phase 1, it’s expected to arrive sometime this year.



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