Bitcoin (BTC) investors are known to be bullish, and even during a 50% correction like the current one, most analysts remain bullish. One reason for investors’ endless optimism and belief in infinite upside potential could be the decreasing issuance of BTC and the firm supply limit of 21 million coins.
However, even the most accurate models, including Analyst Plan B’s stock-to-flow (S2F), cannot predict bear markets, crashes, or FOMO-induced pumps (fear of missing out). Traders usually misinterpret these concepts because value and price expectations can easily be confused.
Bitcoin doesn’t exist in a vacuum, even if BTC maximalists think so. Therefore, its price development depends heavily on how many dollars, euros and yuan are in circulation, as well as on interest rates, real estate, stocks and commodities. Even global economic growth and inflation expectations are affecting the risk appetite of people, companies and mutual funds.
The current price drivers of Bitcoin
Regardless of what these valuation models predict, the price is formed exclusively by market participants at all times. Contrary to what one might expect, data from CryptoQuant only shows 2.5 million bitcoins currently on exchanges. Compare that to the 10.7 million that have not moved in the past 12 months according to ‘HODL wave’ data, and we can say that long-term owners have no impact on the price.
As the difference between value (subjective) and price (historical and objective) becomes clearer, it becomes easier to understand why some investors expect $ 100,000 or higher targets for late 2021 prices, one has to analyze the calls (buy) in the options markets.
Although the call (buy) options clearly dominate compared to the protective puts, this is common with long-term terms for almost every asset class. However, a call option with a strike price of $ 50,000 should be more representative than an option of $ 200,000 because their prices will be noticeably different.
At the time of writing, a right to purchase (call option) Bitcoin for $ 50,000 on December 31st is valued at $ 4,350. Meanwhile, the same instrument with an exercise price of $ 200,000 costs $ 415, which is roughly ten times less.
Cointelegraph previously stated that strikes of $ 100,000 to $ 300,000 should not be viewed as accurate analytical price estimates. Investors usually sell calls with a higher exercise price and at the same time buy the more expensive call option with a lower exercise price.
In short, the assumption that investors will only buy ultra-bullish call options is naive and usually wrong. But even the option strategies that involve selling these options are generally neutral to bullish.
There is still $ 100,000 left in the game, according to options markets
According to the Black & Scholes model, the current price of $ 1,185 for the $ 100,000 call option has a mathematical probability of 13%. It’s worth noting that this method only takes into account the price on December 31st at 8:00 AM ET and doesn’t count the $ 99,999 price as a success.
Even so, there is strong evidence that professional traders are still evaluating the $ 100,000 year-end options. It may seem far-fetched at the moment, but Bitcoin’s volatility leaves room for surprises, especially when you consider that half a year is still ahead of us.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.