*Bitcoin rebound boosts demand for out-of-the-money call options with strikes between $70,000 and $100,000.
* Analysts say Bitcoin’s path of least resistance is higher.
The price of Bitcoin (BTC) is on the rise again, with options traders reconsidering the possibility that the cryptocurrency could reach the $100,000 level sometime this year.
The leading cryptocurrency by market value has risen more than 12% to $63,470 since Federal Reserve Chairman Jerome Powell ruled out further tightening or rate hikes as the next policy move last Wednesday, according to CoinDesk. Disappointing U.S. nonfarm payrolls data on Friday confirmed Powell's stance, accelerating BTC's recovery.
As a result, the demand for Bitcoin call options on leading cryptocurrency exchange Deribit and over-the-counter (OTC) networks has increased significantly. These options specifically target a rebound to new highs, possibly above $75,000 or even $100,000.
“We are seeing some bullish follow-through in volatility and rates following last Friday’s and weekend’s reversal rally. BTC risk reversals have turned positive (calls more expensive than puts) and demand for BTC September expiry $75,000 and $100,000 call options has re-emerged,” QCP Capital said in a note on Monday.
A call option gives the right to buy the underlying asset at a predetermined price on or before a specific date. The buyer of a call option is implicitly bullish on the market, while the buyer of a put option is bearish.
Over-the-counter (OTC) cryptocurrency trading network Paradigm made a similar observation on Monday, citing increased demand for out-of-the-money (OTM) call options, or call options that trade well above the market price of BTC.
“Options markets appear to be anticipating a short-term rally early this morning, with top BTC and ETH trades on Paradigm including OTM call options. We note that previous buyers of the March 25th [expiration] $200,000 call options closed out their position buying the July 2024 [expiration] $85,000 strike,” Paradigm said in a Telegram broadcast.
Data from Deribit shows that traders have locked in more than $688 million in $100,000 strike call options of varying maturities. This is the highest notional open interest of all options listed on the exchange.
BTC options are closed at the strike price
As of this writing, there are over 150,000 call option contracts worth $9.5 billion active on Deribit. This is more than double the open interest in put options, a sign of bullish market expectations.
Notional open interest refers to the USD value locked in the number of active or open contracts. On Deribit, one options contract represents one BTC or one ether (ETH).
Analysts bullish on BTC
Fundamental and technical analysts are once again in agreement that Bitcoin’s path of least resistance is on the higher side.
“Bitcoin continues to be supported by the US election cycle and continued deficit spending. This is why we adjusted our ‘line in the sand’ from 68,300 to 62,000 in our May 3 report — the market could turn bullish (tactically) above 62,000,” 10X Research said.
Siwssblock Insights expects the U.S. dollar index (DXY) to remain defensive unless Powell's stance is challenged. A weaker dollar index is generally good for risk assets, including cryptocurrencies. Since the Fed meeting on Wednesday, the dollar index has fallen 1.2% to 105.20.
“As long as economic data remains supportive in that direction and as long as Fed officials do not oppose Powell’s stance, the dollar’s weak position is likely to persist. The labor market is showing signs of loosening, but a more hawkish Fed voice could still push for higher interest rates for longer, which could impact the dollar’s trajectory,” said the latest Swissblock Insights newsletter.
Meanwhile, Ledn chief investment officer John Glover’s Elliott Wave analysis suggests Bitcoin could rise to 92,000.
“BTC’s price action continues to track my expected path for wave 4, as shown in the chart below. While the drop to $56,500 may have completed the correction, I still expect to see prices in the $52,000-55,000 range before wave 4 is complete, and once wave 4 is complete, I expect wave 5 to push to ~$92,000,” Glover said in an email to CoinDesk.
Ralph Nelson Elliott introduced the Elliott Wave Principle in his book The Wave Principle in 1938. The theory posits that asset price movements can be predicted by observing and identifying recurring wave patterns.
The trend unfolds in five waves, of which 1, 3 and 5 are impulse waves, representing the main trend, while 2 and 4 show a temporary retracement of the previous impulse wave.
