Institutional traders seem to be positioning themselves for one bitcoin price increase to $ 75,000 and beyond in the coming months, according to market data for options.
“On Monday, some block traders took spread calls for $ 75,000 and $ 100,000 strike options that expired on May 28 via the OTC trading and settlement counter Paradigm,” Swiss-based alternative analysis platform Laevitas told CoinDesk. “These may be institutions that are betting that bitcoin will hit at least $ 75,000 in the summer.”
A call option gives the holder the right but not the obligation to buy the underlying asset at a predetermined price at or before a certain date. A bull call spread includes buying call options to / below or above the spot market price and selling the same number of calls with the same output at a higher exercise price.
For example, at 20:23 UTC (17:23 ET) on Monday, a trading company bought 100 contracts of the option at the end of May 28 for $ 75,000 strike and sold 100 contracts of the option at the end of May 28 at $ 100,000 strike . Bitcoin was traded at $ 48,721 when the call spread was purchased.
Institutions tend to trade through OTC offices to avoid affecting spot market prices. Transactions facilitated by Paradigm are executed, margined and cleared automatically in Deribit, the world’s largest exchange of cryptocurrencies by trading volume.
The trading cost is 4.75 BTC, which is the maximum loss that the institution would suffer if bitcoin ends at or below 75,000 USD on 28 May.
The initial cost would have been much higher if the trader had only bought $ 75,000. “The purpose of call dissemination is to have a bullish direction but offset the cost of just buying calls,” Laevitas said.
While the sale of $ 100,000 calls has bought down the cost, it also limits the maximum return to 20.25 BTC. The strategy will earn a maximum profit if bitcoin amounts to or exceeds $ 100,000 on May 28th. Several other call spreads were bought on Monday during strikes from $ 52,000 to $ 100,000.
The data show that institutions remain unafraid of the recent price decline and predict a continued rally over the next three months.
At press time, bitcoin is changing hands close to $ 48730, which equates to a gain of 1.8% over 24 hours. The cryptocurrency was rejected over $ 50,000 during Asian hours, according to CoinDesk 20 data.
While the cryptocurrency has bounced up from lows near $ 43,000 observed over the weekend, some analysts believe the payback may not be over yet.
“Currently, we believe that the biggest risk for bitcoin is the short-term risk associated with a downturn in the US and global equities,” said Joel Kruger, currency strategist at LMAX Digital. “We believe that there is still room for more weakness in the future and would warn against expectations that the bottom is in.”
Futures linked to the S&P 500 are currently down 0.23% on the day. Losses could deepen, which would increase the bearish pressure around bitcoin if US government interest rates resume their rally.