Is it feasible to expect a $100,000 Bitcoin price by the end of 2021 if the bulk of Bitcoin investors are aiming for it?
Investors in Bitcoin (BTC) are notorious for being bullish, and even following 50% declines like this one, most analysts stay upbeat. BTC‘s decreasing issuance and fixed supply limit of 21 million coins could be one explanation for investors’ perpetual optimism and belief in boundless gain.
Even the most accurate models, such as analyst Plan B’s stock-to-flow (S2F) model, can’t foresee bear markets, crashes, or FOMO-induced (fear of missing out) pumping. But, unfortunately, traders frequently misunderstand these principles because value and price expectations are easily erroneous.
Even if BTC maximalists believe it, Bitcoin does not exist in a vacuum. As a result, its price movement is significantly influenced by the number of dollars, euros, and yuans in circulation and interest rates, real estate, equities, and commodities. Moreover, even global economic growth and inflationary predictions impact people’s risk appetite, firms’ risk appetite, and mutual fund risk appetite.
The current drivers of Bitcoin’s pricing
Regardless of what these valuation models suggest, pricing is solely determined by market players at any particular time. Data from CryptoQuant shows that only 2.5 million Bitcoin is now placed on exchanges, which is the polar opposite of what one may assume. When we compare this to the 10.7 million shares that haven’t moved in the last 12 months, we can see that long-term investors have no say in the price.
It’s simpler to understand why some investors predict $100,000 or greater targets by the end of 2021 as the contrast between value (subjective), and price (historical and objective) becomes more apparent. However, to correctly assess what odds are being set for those prices, one must first examine the calls (buy) available in the options markets.
Although call (buy) options substantially outnumber defensive puts on longer-term expiries, this is true for practically every asset class. A call option with a $50,000 strike price, on the other hand, should be more representative than one with a $200,000 strike price because their prices will be notably different.
A right to acquire (call option) Bitcoin for $50,000 on December 31 is worth $4,350 at the time of writing. Meanwhile, the same instrument with a strike price of $200,000 costs $415, or nearly ten times less.
Cointelegraph recently detailed why the $100,000 to $300,000 strikes should not be regarded as exact price forecasts based on the study. Typically, investors sell higher-strike calls while concurrently purchasing the more expensive lower-strike call option.
To summarize, thinking that investors are only buying ultra-bullish call options is naive and frequently incorrect. Even option strategies that include selling those options, however, are often neutral to optimistic.
According to options markets, $100,000 is still up for grabs.
According to the Black & Scholes model, the current $1,185 price for the $100,000 call option has a 13 percent mathematical probability, according to Black & Scholes model. However, it’s worth noting that this methodology only analyzes the price on December 31 at 8:00 a.m. ET, hence the $99,999 pricing isn’t considered a success.
Despite this, there is considerable evidence that experienced traders continue to value the $100,000 options at the end of the year. It may seem far-fetched right now, but Bitcoin’s volatility leaves an opportunity for surprise, especially with half a year ahead of us.