Traders hedge against potential downside risk after bitcoin fails to hit $100,000 high.
Investors in the world’s largest cryptocurrency are expecting the price of bitcoin to fall sharply after it failed to hit an all-time high of $100,000, a cryptocurrency trading platform said, citing recent options activity data.
Bitcoin hit an all-time high of $99,830 on Nov. 22, but has since fallen more than 8 percent, hitting a one-week low of $91,377.32 on Tuesday.
The best-known cryptocurrency has surged 120 percent so far this year and is up about 34 percent this month, tied to the election of Donald Trump as U.S. president and the emergence of a group of pro-cryptocurrency lawmakers in Congress. Trump campaigned in favor of digital assets, promising to make the U.S. the “cryptocurrency capital of the world” and to create a national bitcoin reserve.
Nick Forster, founder of Derive, a decentralized options protocol with $7.1 billion in total trading volume, commented via email Tuesday that bitcoin’s so-called call-put skewness index for the Dec. 27 expiration has plunged 30 percent in the past 24 hours as market participants have shifted to more protective strategies.
Call-put skewness reflects market sentiment and refers to the difference in implied volatility between call and put options. Despite the decline, this index still shows that there are more calls than puts in the market.
This suggests that traders are beginning to hedge against potential downside risk, which could be a reaction to bitcoin’s sharp decline,” Forster said. However, such a pullback is not unusual in a bull market.
Investors are eyeing Dec. 27, when $11.8 billion worth of bitcoin options expire, which could trigger a sharp price move in either direction.
According to Forster, there is a 68% chance that bitcoin will fall 16.03% to $81,493 or rise 19.9% to $115,579 by December 27. However, the probability of bitcoin experiencing greater volatility (down 29.49% to $68,429 or up 41.83% to $137,645) is smaller, at about 5%.
Derive’s data also shows that bitcoin has a 45% chance of reaching $100,000, up from 34% last week, and a 4% chance of exceeding $150,000.
Forster also noted that bitcoin’s volatility has remained stable over the past seven days, with implied price volatility of 63 percent over the next seven days and 55 percent at the 30-day level, “a tight consistency that suggests the market expects significant volatility soon.”
Bitcoin has now retreated from its highs, and one of the reasons cited by market participants for the decline was profit taking.
In a letter to clients on Tuesday, Anthony Pompliano, founder and CEO of Professional Capital Management, noted that long-term holders have sold $60 billion worth of bitcoin in the past 30 days.
Since the FTX crash two years ago, which saw bitcoin bottom out at $15,479, 21 percent of bitcoin selling by long-term holders has occurred in November, which is “the worst profit-taking of the cycle to date,” he said.
