Bitcoin
High priced $32K Bitcoin options show some pro traders expect more upside
A month ago, one would be hard pressed to find any investor who would have expected a $32,000 Bitcoin (BTC) price for January. At the time, a 140% upside was needed from the $13,300 price on Oct. 30 and this seemed quite far fetched.
Therefore, the January $32,000 BTC call (buy) options traded at Deribit for a meager $67, or 0.005 BTC in late October.
Fast forward to now, and the same call option peaked at $705. That’s an almost 10x gain in less than four weeks. Keep in mind that despite the rally to $19,484, an additional 67% upside is still needed to reach $32,000.
Albeit the recent BTC price increase, the implied options probability (delta) currently sits at 11%. That call option price has also increased due to the BTC volatility change as sellers will request a more substantial premium for taking the risk during uncertain markets.
Intense price swings, regardless of the direction, will push volatility higher and any unexpected newsflow usually drives the indicator upwards.
Take notice of how BTC volatility spiked from 57% on 30 Oct. to 78% this week. This event is notably bullish for call option buyers. Even if the BTC price had stayed the same, the option price would have climbed accordingly.
Don’t take options probabilities literally
Options pricing is also heavily dependent on how distant the expiry date is. This same $32,000 call might be deemed worthless two days ahead of maturity. Therefore, traders should not fixate too much on implied options probability (delta).
By looking at call (buy) options for Dec. 25, an investor might infer that the 26% odds for $20,000 seems dim. After all, an 18% pump in a month seems unreasonable. Traders tend to have a short-term memory, but an 18% increase in 30 days happened in 9 out of the past 12 months.
The last time an 18% or even larger monthly pump happened was not so long ago. On Aug. 23 Bitcoin closed at $11,645, which was a 22% increase from the previous month.
Traders and investors should consider buying call options with longer expiry dates. Those who were brave enough to bet on the 150% BTC price increase a month ago are extremely satisfied with the results.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Bitcoin’s price correction from its record high of approx $42,000 in early January appears eerily similar to that of spot gold in August 2020.
In retrospect, the precious metal rallied to its all-time high of $2,075.28 on January 8. Its wild move upward prompted traders to secure profits. As a result, the XAU/USD exchange rate started correcting lower in the later sessions. The pair formed a support area between $1,847-1,863, which it eventually broke in late November, falling to as low as $1,764.
Spot gold broke bearish on its descending triangle pattern, only to reclaim its support level less than a week later. Source: XAUUSD on TradingView.com
Gold-Bitcoin Similarity
Marc Principato, the executive director of digitally-operated Green Bridge Investing, highlighted gold’s growing influence over the Bitcoin market in a note published Sunday. Just like the precious metal, the flagship cryptocurrency formed a consolidating descending channel pattern after forming its record high, leading Mr. Principato to envision BTC/USD at $27,500.
“If 27.5K is compromised, for our strategy, that will signal a broader consolidation is likely in play,” he added. “If you want to get a better idea of what this scenario may look like, look at XAUUSD from August to December. This is NOT a prediction; it is a potential scenario to prepare for if Bitcoin chooses to go this route.”
Bitcoin is halfway copying gold price’s moves between August and December. Source: BTCUSD on TradingView.com
So it appears, Bitcoin came halfway across copying the gold market’s moves from 2020. The cryptocurrency now tests the $30,774-30,188 area for a potential breakdown towards the downside support target. Apprehensively, that level could be near $27,700 or $23,500.
“The 27.5K to 32K area so far has proven to be supportive,” reminded Mr. Principato, nonetheless.
“There is a failed low formation in play on the daily time frame while at the same time a new sell signal is about to confirm. As long as 27.5 continues to hold, probability favors an eventual bullish break out in the short term. This can take place over the next week or two,” he added.
The analogy appeared reminiscent of gold’s rebound after hitting $1,764 in November. As the precious metal moved back upwards, it reclaimed the $1,847-1,863 area as support and went on to hit sessional highs near $1,959. Nevertheless, it is now consolidating inside the same range.
Bitcoin draws major comparisons from gold for its safe-haven, anti-inflation, and anti-fiat narratives. Many analysts, including strategists at JPMorgan and Guggenheim Partners, believe the cryptocurrency would mousetrap a portion of gold’s market in the future due to its demand among millennials.
An overnight sell-off in the Bitcoin market Monday brought its prices down from an intraday high of $34,888 to as low as $31,435.
The approx 10 percent decline occurred as traders’ anxieties mounted over a JPMorgan report that cast doubts over Bitcoin’s potential to retest $40,000. According to Nikolaos Panigirtzoglou, the lead strategist at JPMorgan & Chase, one of the major catalysts behind Bitcoin’s supersonic rally was the Grayscale Bitcoin Trust, which amassed about $20 billion worth of BTC during its 1,000 percent price rally.
Nevertheless, the last couple of weeks saw a decline in the New York fund—of about 22 percent—that surpassed Bitcoin’s very own downside correction of 17 percent.
Mr. Panigirtzoglou added that a drop in Grayscale’s accumulation spree might hinder Bitcoin’s attempt to reclaim $40,000 or the levels above it, adding that “the near-term balance of risks is still skewed to the downside.”
Bitcoin Descending Triangle
The bearish fundamental risked activating a classic bearish reversal pattern that has emerged on the Bitcoin charts lately. The BTC/USD exchange rate has been forming a sequence of higher lows on repeated upside rejections while holding its footing at a horizontal support area. The pattern appears like a Descending Triangle.
Bitcoin’s Descending Triangle pattern risks crashing price to near $20,000. Source: BTCUSD on TradingView.com
In retrospect, a Descending Triangle’s formation in an uptrend points to a reversal.
Most traders look to open a short position following a high-volumed breakdown from the pattern’s lower trendline support. Typically, the price target is as much as the Triangle’s maximum height. In Bitcoin’s case, it is more than $11,000 that puts the cryptocurrency at risk of slipping below $20,000.
Nevertheless, certain adjustments to the support trendline change the entire bearish setup by turning Descending Triangle into a Bull Pennant.
Bitcoin’s Bull Pennant setup expects the price to surge by another $20,000. Source: BTCUSD on TradingView.com
So it appears, Bitcoin has simultaneously formed lower highs alongside the higher lows, forming a Symmetrical Triangle in an uptrend. In retrospect, it is a bullish continuation pattern that could have traders open long positions following a high-volume breakout above the Triangle resistance trendline.
The Pennant’s upside target is as high as the flagpole formed before it (~$20,000). That puts Bitcoin en route to at least $50,000 should the bullish bias sustain.
Bullish Fundamentals
Fundamentals that could trigger Bitcoin’s Bull Pennant include the US coronavirus stimulus, the Federal Reserve’s pro-inflation policies, and a bearish outlook for the US dollar. That has prompted many corporations and investors to seek hedge in Bitcoin due to its similarities with safe-haven gold.
“We’re talking about Bitcoin over the next three, five, ten years slowly inching away at gold’s market capitalization,” Vijay Ayyar, head of Asia Pacific with Singapore-based crypto exchange Luno, told Bloomberg Tuesday. “If that happens, you are way over $50,000.”
BTC/USD was trading above $32,000 at the time of this writing.
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