Traders are betting that Bitcoin could jump as high as $50,000—more than double its record during the cryptocurrency mania of 2017, as outlined by the The Wall Street Journal. Many see this year’s rally, alongside the growing amount of ultra-bullish trades in Bitcoin options, as a sign of extreme froth in the Bitcoin market.
These mega-bulls forecast that the world’s largest digital coin can grow more than six-fold to $50,000, compared to other bullish calls at just $10,000. After an epic plunge in 2017, in which Bitcoin fell from a high near $20,000 and lost over 70% of its value, the cryptocurrency has already increased over 100% from the beginning of the year to about $7,570 as of Tuesday evening.
Bitcoin Regains Popularity
- Bitcoin price more than doubles YTD
- Highest strike price for Bitcoin on LedgerX in 6 months
- Just 1.3% of Bitcoin transactions for merchant services in 2019
Source: Wall Street Journal, Bloomberg
Bitcoin Call Options Signal Euphoria
According to LedgerX, a New-York based marketplace for bitcoin derivatives, an unidentified trader bought 30 call options that gave the owner the right to purchase the digital coin at a price of $50,000 between May 23, when they were purchased, and June 2020, when they expire, per the Journal.
Trading records demonstrate that the buyer spend $4,500 on the options. If the digital coin fails to reach that lofty strike price, he or she will lose that money. In the case that Bitcoin does soar to $50,000, that person could reap profits much larger than if he or she simply bought and held bitcoin.
While just one Bitcoin call option is small for an industry that sees billions in dollars of digital currency exchanges daily, LedgerX said it had not seen such a high call in over 6 months, and that the amount of call-option trades with strike prices of $25,000 spiked in May.
“When you get these bull markets, people get a little excited and they start making more and more aggressive trading decisions,” said Josiah Hernandez, chief investment officer a cryptocurrency trading firm Satoshi Capital.
Trading on Bitcoin derivative exchange Deribit also indicated signs of market exuberance, as records show that one or more traders bought Bitcoin call options with a strike price of $36,000.
Crypto World Still Driven by Speculation
Recent cryptocurrency euphoria comes as a new study demonstrates that Bitcoin's rally isn't fueled by growing mainstream acceptance but, instead, by speculation, per a detailed Bloomberg report.
In fact, data from New York-based blockchain researcher Chainalysis Inc. show that merely 1.3% of economic transactions from Bitcoin were attributed to merchant sales in the first four months of 2019. This data from the payment services provider, which processed about $1 billion in 2017 and 2018, suggests that “little changed over the boom and bust cycles of the prior two years,” per Bloomberg.
"Bitcoin economic activity continues to be dominated by exchange trading," said Kim Grauer, a senior economist at Chainalysis. "This suggests Bitcoin’s top use case remains speculative, and the mainstream use of Bitcoin for everyday purchases is not yet a reality."
While a growing number of blue chip companies such as AT&T Inc. (T) have begun to accept payment in the form of Bitcoin, the problem is that the cryptocurrency is championed by people who would rather hold the asset than spend it. Few speculators are attracted by the prospect to pay for things like wireless services in Bitcoin, given the digital asset’s price could very well skyrocket another 50% in a matter of weeks.
While skeptics continue to believe that digital assets like Bitcoin are far from becoming commonplace in the commercial setting, some bulls argue that it doesn’t really matter.
“Bitcoin is the leader today, and may continue to be the leader due to having the largest network effect and ‘brand,’ but I don’t think Bitcoin itself will ever be ‘money,”’ said Jeff Dorman, chief investment officer at LA-based financial services firm Arca. "Bitcoin doesn’t have to be money to be a success. A lot of great technologies end up being strategically important without living up to their initial road map,” he added.