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 the endless optimism and belief of investors in an infinite upside potential could be the decreasing issue 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 raw materials. 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 last 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.
Bitcoin aggregated call options for December 31st Source: Bybt
Although the call (buy) options clearly dominate compared to the protective puts, this is common for 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.
Snapshot of the call options market as of December 31st Source: Deribit
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 typically sell calls with a higher strike price while at the same time buying the more expensive call option with a lower strike price.
In short, the assumption that investors will only buy the ultra-bullish call options is naive and usually wrong. But even the option strategies that involve selling these options are generally neutral to bullish.
$ 100,000 is still in play, 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 are those of the author only 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.