Today, Bitcoin continues to rocket up toward the $10,000 mark, trading above $9900 for the first time in months.
It’s easy enough for even the casual day trader to see that Bitcoin is doing well in today’s market, but underlying analysis produces even more in evidence of interest in the cryptocurrency that’s rivaling gold as a safe harbor investment in today’s volatile market.
Omkar Godbole is a staff writer at Coindesk who is accustomed to documenting the ups and downs of Bitcoin daily. Today, he’s taking note of options activity that helps to show why higher Bitcoin prices are supported.
Godbole lays out the numbers on open interest on BTC options this way:
“Open interest refers to the number of options contracts that have been traded but not yet liquidated by an offsetting trade or an exercise or assignment,” he writes. “While open interest represents the number of contracts open at a given point of time, trading volume refers to the number of contracts traded during a specific period. The surge in open interest looks to have been caused by increased demand for put options, or bearish bets.”
Yes, you read that right: bearish bets. Godbole goes on to explain that the put demand shows backing for a post-halving decrease in BTC price as the mid-May miner reward change nears.
“The put bias seen in the options market suggests investors may be hedging for a potential post-halving price drop,” Godbole writes.
His next two paragraphs are an excellent illustration of a key conundrum faced by traders: while the halving has been seen as driving longer term value, it is also historically correlated with a post-halving drop: in Godbole’s words –
“That the supply-altering event is a long-term bullish development has been extensively discussed by the analyst community for many months. Bitcoin’s price has rallied by nearly 160% since bottoming out at $3,867 in March and has recently decoupled from traditional markets as hype over the event mounts. Such strong rallies ahead of major events are often followed by price pullbacks. Historical data shows the cryptocurrency suffered a 30% drop in the four weeks following its second reward halving, which took place on July 9, 2016.”
So after a big rally, like we are seeing right now, what seems to be in the cards is just that: a pullback. A correction. That’s a pretty clear direction for traders operating in a week-to-week pattern strategy. So listen up.