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Why Is the Bitcoin Options Market Suddenly Roaring?

Options contracts are a type of derivative that allows an investor to make speculative or hedging decisions with a flexible exercise price and expiry date. Futures and perpetual swaps are the dominant forms of derivatives in the crypto market, but options are making a lunge for the crown. As more sophisticated speculators foray into crypto, options will see growth beyond futures and swaps.

Efficient Pricing Mechanisms

At its heart, options contracts allow investors to choose a price and expiry date along with either the option to buy or sell a pre-determined amount of the underlying instrument.

Simply put, a 2 BTC call option with a strike price of $11,000 and an expiry date of May 31, 2020 means that the holder has the option, but not the obligation, to buy 2 BTC at $11,000 on or before May 31, 2020 (depending on the style of option).

Futures , on the other hand, merely offer a singular standardized contract that everybody trades. In a relatively illiquid market like crypto, options end up splitting liquidity between various expiry dates and strike prices. The standardization of futures allows for more liquidity to accrue to a single type of contract, based only on expiry.

As the market grows, liquidity is guaranteed. An increase in options liquidity is also guaranteed because more growth and more underlying spot liquidity lead to more investors entering the market.

In the stock and commodities markets, options are dominated by financial institutions looking to either hedge an existing position or speculate on price movements with capital efficiency. There are retail traders as well, but they do not significantly affect market liquidity.

For example, a March-end expiring BTC $10,000 strike price call option on Deribit has a premium of $1,970. This means, so long as BTC price is above $11,970 on the date of expiration (Mar. 27, 2020), an investor will profit. Capital efficient and flexible strike prices.

The Bitcoin options brigade has seen commendable traction in 2020, with Deribit dominating volumes and CME slowly getting itself to a nearby plateau for institutional investors. As more hedge funds open up in the space, and more existing financial giants decide to speculate on the Bitcoin market, we will see options gaining more traction than futures, and much more than perpetual swaps.

In all honesty, perpetual swaps are not a very efficient instrument and are a retail-focused product thanks to the simplicity of execution. These products will continue to dominate the retail market but will be dwarfed when the big boys enter the playing field.

Physically settled and cash-settled will see a battle in the near future. It is too early to tell which of the two will be favored, as it all boils down to Bitcoin’s long term sustainability and institutional perception. However, derivatives like options will also see sustained traction in the event that Bitcoin truly becomes a medium of exchange.

If Bitcoin becomes an MoE and volatility still runs rife, derivatives will give merchants the ability to hedge price risk and keep a standard settlement price.

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5 Reasons Why Bitcoin Is Crashing Right Now

1. Market Manipulation

BTC market manipulation has been a highly contentious area that always arises when questioning Bitcoin’s price activity. Whether traders choose to accept it or not, evidence supplied by a University of Texas finance professor recently, along with investigations by the United States Justice Department the Commodity Futures Trading Commission, are beginning to prove that this ‘conspiracy theory’ actually exists in the market.

If you looked at Bitcoin’s chart this morning you would have seen that BTC was actually heading towards a bullish breakout from an ascending triangle pattern. Admittedly technical analysis is not a definitive tool for establishing price movements, but it does seem strange that BTC was able to climb out from the Bithumb hacked unscathed yesterday, show rising support through last night and then suddenly breakout bearish for no obvious reason.

Information presented in ‘Uncovering The Real Cartel In Bitcoin’ outlines the shady relationship between Tether and Bitfinex using evidence from the ‘Paradise Papers’, showing that USDT has been used to artificially inflate not just BTC markets, but other alt-coin trading pairs as well. Professor John Griffiths of the aforementioned University of Texas also wrote an extensive 66 page thesis recently highlighting this same suspicion. Though Tether has recently passed an independent audit which confirms that Tether has sufficient US dollar supplies to back each issued USDT token, some belief that this could have been achieved in a number of ways; including borrowing money to temporarily ‘window dress’ their bank accounts to artificially back their issued token supply at the time of the audit.

2. Market Supply Outweighs Current Demand

In a twitter post earlier today, Ronnie Moas touched on this issue in the current crypto market, that after the over-inflated Q4 surge last year crypto investors are beginning to lose faith that those figures will not be reached again.

“Supply hanging over the market like a dark cloud. Will be a challenge to blow that out”

Charlie Lee also commented on this lack of faith in a CNBC Fast Money interview yesterday, saying that the prices of Bitcoin , Litecoin and other alt-coins are ‘disjointed’ from the new developments that each project is rolling out this year. This is true, especially when you look at Tron and Vechain at the moment. Both projects have, or are about to, launch their mainnets and have both made significant partnerships with industry leaders, yet neither have experienced any notable rise in value. Instead, the market remains fixated on selling off and are afraid to HODL or invest against the falling market.

3. Market Maturity

Another reason to explain why Bitcoin is falling right now is market maturity. Despite Bitcoin being created back in 2009, the crypto market itself didn’t really start to gain traction until 2020/2020 when Ethereum , Dash and other early coin projects were starting to emerge from the wake of Bitcoin’s innovation. When crypto investing exploded late last year, the market was still in its infancy and largely speculative. Even now many projects are only just starting to release minimal viable products (MVPs), testnets, platforms etc off the back of their ICOs.

The premature surge of money in Q4 last year was never going to last for long and now we’re experiencing a harsh correction back to where the market should really be at this time in its development.

4. Mainstream Media FUD

Another crippling factor that always holds Bitcoin’s price back is bad press and the torrent of misguided information that is passed down to the general public.

As the traditional financial system comes under threat, mainstream media has played its role in misrepresenting the industry to potential new investors in this space, by downplaying its technological utility and over emphasizing bearish market movements. According to German Philosopher Arthur Schopenhauer though, all truths travel through 3 stages of acceptance,

(1) Ridicule
(2) Violently Opposed
(3) Accepted As Self Evident

The crypto market here is no different. Right now the mainstream does not recognise the potential in this industry and is choosing to ignore it’s inevitable advance. Eventually however, it will become as widely accepted as mobile phones and the internet which also had to pass through those same 3 stages.

5. National Regulatory Intervention

Regulatory opposition was always going to fight against the crypto market because it is an unregulated and decentralized financial system born into a centralized, heavily regulated world. In some ways regulatory intervention has proved beneficial in this space, like the self-regulated Japanese exchange association which aims at improving user security across exchanges, to better the nation’s crypto ecosystem.

In the US however, government institutions such as the Securities and Exchange Commission (SEC) and the New York State Department of Financial Services (NYDFS) have both smothered digital asset trading in regulations; imposing licensing and registration requirements on any crypto exchange or broker company wishing to operate in the US. This has led to a lot companies moving overseas and has restricted many US citizens from participating freely in the market.

Five Reasons Why Bitcoin Investors Shouldn’t Be Worried

In This Article

With Bitcoin BUY NOW ’s sudden drop over the last two days, there’s been some panic in the air. However, the leading cryptocurrency is still posting positive fundamental indicators.

With every sudden Bitcoin price collapse, there are always those that come out of the woodwork to claim that Bitcoin is ‘finally dead.’ At the very least, they seem to imply that Bitcoin’s dominance is living off of borrowed time. However, fundamental indicators tell us a different story.

Five Reasons Bitcoin Investors Should Not Be Worried

Here are five reasons why Bitcoin HODLrs shouldn’t panic over the recent price drop. It all comes down to fundamentals, brought to you by researcher Hans HODL (@hansthered).

1. 365-MA for Transactional Output Is at All-Time High

A chart showing the moving average for Bitcoin’s transactional output over the last 365 shows that we are currently at an all-time high. In fact, there has been a significant uptick in 2020 alone.

Apparently some people are worried about Bitcoin? I don’t know if I can help, but let’s look at some data!

Here’s a chart of the 365 daily moving average of the number of transactions on the Bitcoin network. Looks like we’re at an all-time high… pic.twitter.com/apvQgthZuJ

2. Hash Rate Near All-Time High

Despite the controversy over the recent blip which caused a supposed hash rate drop, it recovered almost immediately and is currently back near its all-time high. Bitcoin is undisputedly the more secure network in the entire cryptocurrency industry.

Ok, let’s check the hash rate. Maybe the miners quit mining or something? No, actually that’s at an all-time high as well. pic.twitter.com/Vx3Ao4sUNP

3. Bitcoin’s Inflation Continues to Fall

The point needs to be made clear that Bitcoin will only become more scarce over time. Bitcoin’s deflationary pressure is right on schedule and below Hans HODL graphs it on a logarithmic scale.

What about the inflation rate? Did we suddenly increase the supply? Hmm, right on schedule and falling in log scale over time as expected. pic.twitter.com/PQNPFKZ00V

4. Bitcoin’s Price Logarithmically Is Still on Track

All long-term estimations of Bitcoin’s price movements should be tracked on the log scale. This allows us to more clearly see the different price waves, going as far back as 2020. Using this metric, Bitcoin is soaring.

Maybe the price is the issue? No, that’s increasing in log scale too… pic.twitter.com/V2ng43NSVD

5. Bitcoin’s Still Very Active GitHub

Although people may forget, Bitcoin’s GitHub is still quite active. Over the last 30 days, there were 144 Pull Requests merged and around 40 closed issues.

Did the developers stop writing code? No, 114 Pull Requests merged in the last 30 days… pic.twitter.com/s2wvpeZU9T

The Bottom Line

According to Hans HODL, Bitcoin’s fundamentals don’t match the panic surrounding its future right now. The suggestion is for traders and holders to step outside of the noise for a bit and look at Bitcoin objectively. Using these metrics, we can see that major indicators for Bitcoin remain positive — and are even getting better.

I don’t know what to tell you guys, from a fundamental perspective Bitcoin looks great. I guess it’s back to HODLing!

Turns out it was much panic over nothing. Time to go back to HODLing, indeed.

Do you agree with these 5 fundamental indicators? Are there more you would add? Let us know your thoughts below in the comments.

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