Ironically, the cryptocurrency market is entering a bullish run within a bear market. While seeing Bitcoin’s decline is considered a short-term trend, analysts believe it will peak at a new all-time high in 2021, which has many traders placing strategic call options on platforms like Bitlevex and FTX.
Undoubtedly, 99% of the crypto traders are holding their fingers crossed for a bull market return to spike Bitcoin up to an all-time $100,000 per coin. Currently, many analysts and expert investors consider that hodling is the most promising strategy at the moment.
In this article, you’ll find out what the trends are in the cryptocurrency options market in 2021’s summer.
Back to Basics – What Are Cryptocurrency Options?
To understand what a cryptocurrency option is, first you need to understand the concept of financial derivatives. A derivative is a financial security whose value relies upon or derived from an underlying asset.
In layman’s terms, it is a contract between two or more parties, in which the security’s price derives from fluctuations in the underlying asset. A crypto derivative is a derivative contract that has Bitcoin or another cryptocurrency as its underlying asset.
Options are one of the most popular types of derivatives. When purchasing a cryptocurrency option, the buyer has the right to buy or sell the underlying asset (e.g., BTC, ETH, etc.) at a set price within a certain period.
In essence, if you buy a crypto derivative, you ensure you can either buy or sell a crypto asset at a certain price on a pre-set date, regardless of what the asset price is at that time.
When you buy a call option, you have the right to buy the underlying asset at a chosen price. On the other hand, when you buy a put option, you have the right to sell at a chosen price.
Evaluating Cryptocurrency Options the Right Way
There are several factors involved in options pricing, such as:
- Strike price – the price you agree to buy or sell at in the future
- Spot price – the current market price of an underlying asset
- Time to maturity – refers to the remaining time until the option expires
- Implied volatility – in essence, it measures how much the market expects the price of an underlying asset to change in the future
- Risk-free rate – represents the influence of interest rate in the option’s price
Cryptocurrency Options Market Scenario – What to Expect in Mid-2021?
On April 19th, Bitcoin collapsed and hit $30,681, down from $43,861 the previous morning. Then, after a few hours of partial recovery, the digital asset started to trade around US$ 37,000.
Since then, the asset’s price variation has remained around $35,000, either up or down. It’s a completely sideways price action that’s meant to trap traders.
During the Bitcoin free-fall period in April, the expiration of more than $3 billion in Bitcoin derivatives on exchanges was triggered. In this sense, futures contracts account for almost 50% of all trades involving Bitcoin in the world.
With its recent performance, the world’s most popular cryptocurrency accumulated about 35% in devaluation in May 2021. Throughout the period, the market value of bitcoin as a whole has already fallen by more than US$365 billion.
Looking at this trend, the best option for most investors would be to hodling their existing positions, perhaps taking advantage of the falling price to buy more Bitcoin while the asset remains somewhat affordable.
Other cryptocurrencies have also been racking up heavy losses, especially industry-leading assets such as Ethereum, XRP, Cardano, Binance Coin- which indicates that options trading would not be profitable out of an advanced strategy.
In addition, many experts see needed fixes after an almost four-month period of frenzy following announcements of new institutional investors in Bitcoin (e.g., Tesla, MicroStrategy, etc.).