A crypto trading platform, referencing recent options activity, reports that investors in Bitcoin are bracing for a major price drop after the cryptocurrency failed to reach the anticipated $100,000 all-time high. The increase in Bitcoin futures contracts, which let traders speculate on the price of the asset, has raised the cryptocurrency’s implied volatility, suggesting more bets are being placed on a potential decline in its value.
The bitcoin market is increasingly being adorned with all the trappings of Wall Street, including exchange-traded funds and options that can be used to make leveraged wagers. This has attracted new investors and opened the door for institutional players to bet on the crypto space.
However, the price of bitcoin has also been volatile, and the market has been rattled by several events, from the Mt Gox hack to China’s first ban on the asset. The market’s vulnerability to extreme drawdowns is a crucial concern for analysts.
While the market has been shaky, many experts still believe Bitcoin is on the verge of breaking through $100,000. “As soon as you hit $100k, it’s just a matter of when, not if,” Russ Mould, investment director at AJ Bell, told Yahoo Finance.
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However, Mould emphasized that investors should carefully consider the risks of investing in digital assets and be aware that a price drop is not out of the question. “We’re at the very early stages of this sector,” he said. “There’s a lot of room for volatility to continue.”
Cryptocurrency prices soared last year as investors were lured in by the promise that they could avoid government interference. In addition, President Trump embraced digital assets during his campaign, promising to make the United States the crypto capital of the world and accumulate a national stockpile of coins.
This drove a spike in bitcoin’s value, and it has continued to rise this year as more investors are drawn to the asset. However, some experts say that the market may enter a new phase as prices settle and more investors begin investing in bitcoin ETFs and cash-settled options.
Interestingly, the iShares BlackRock spot bitcoin ETF (IBIT) saw its assets surge to more than $40 billion just 10 months after launch. And options tied to the fund began trading Tuesday, further encouraging mainstream interest in the cryptocurrency.
Data from Deribit, a crypto-native derivatives platform, show that the liquidity of bitcoin options has surged since November, with open interest on IBIT options rising 12% in the week to Nov. 5. The higher open interest suggests that more institutional traders are starting to make bets on the crypto market, which could push prices higher as well.
