A Million-Dollar Bet That Bitcoin Will Hit $50,000

Discussion in 'Cryptocurrencies' started by ajacobson, Dec 26, 2017.

  1. ajacobson

    ajacobson

    [​IMG]
    The digital currency was trading at $16,280.24 late Wednesday afternoon. PHOTO: DADO RUVIC/REUTERS
    By
    Alexander Osipovich and

    Gunjan Banerji
    Dec. 20, 2017 5:39 p.m. ET
    59 COMMENTS


    Someone out there just made a bet that bitcoin will surge above $50,000 next year, trading data show—about triple its current price.

    Daily trading records released Wednesday by LedgerX, a startup electronic market for bitcoin derivatives, show that an unidentified trader or traders entered the bullish bets using bitcoin call options that expire next December. The trade wagering on a move to $50,000 was the first of its kind on LedgerX.

    Just under $1 million was paid for the options in one or more trades that took place during the 24-hour period ending at 4 p.m. Eastern Time on Wednesday, the records show. It is unclear from LedgerX’s data who the buyer or buyers were or whether the purchasing was done in multiple transactions or just one.

    If bitcoin is below $50,000 on Dec. 28, 2018, the options will expire worthless, and the $1 million will be lost. If bitcoin rises above that level, the options will give their owners the right to buy 275 bitcoins for $50,000 apiece—a transaction that would cost about $13.8 million.

    Such a trade could be lucrative if the digital currency skyrockets to $500,000 or even $1 million or more—something some of bitcoin’s most enthusiastic supporters say will happen.


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    The digital currency was trading at $16,280.24 late Wednesday afternoon, according to CoinDesk. It is up more than 1,500% from the beginning of this year, an extraordinary run-up that has unleashed a flood of investor interest. But skeptics such as Nobel Prize-winning economist Joseph Stiglitz call bitcoin a bubble and say its price will inevitably crash.

    LedgerX Chief Executive Paul Chou declined to identify who was behind the big call-options play, citing regulatory restrictions. But the scale of the purchasing reflects the mounting interest of hedge funds and other big financial firms in cryptocurrencies, he said.

    “Without a doubt, there are institutions out there that are looking at these types of trades or have done these types of trades,” Mr. Chou said. “It’s not an individual, let’s put it that way.”

    Bitcoin options have gained popularity in recent months as a way to bet on the cryptocurrency’s ups and downs. At Deribit, a Netherlands-based bitcoin derivatives exchange, an average of around 400 options contracts were trading hands daily in late November, up from 50 to 100 a few months ago, said John Jansen, the company’s chief executive. Deribit has started handling large, institutional-size trades, he added.


    Traders have targeted bullish options that would pay out if bitcoin’s price spikes, Mr. Jansen said. Earlier this month, for example, one of the most popular bets at Deribit involved call options that would pay off for investors if bitcoin hits $20,000 by March.
     
  2. Pekelo

    Pekelo

    OK, let's do the math and see if it is a good bet:

    1 option cost was $3636/bitcoin and the breakeven for the position is 53.6K.

    Current price of BTC is 15K, so one could buy 66.6 bitcoins outright. If price goes up to 53.6K, where the option buyer just breaks even, the bitcoin holder already made (53.6-15)K x 66.6=2.57 million

    Looks like holding bitcoins is a safer bet, after all the break even is at 15K instead of 53.6K.

    Let's say price will go up to 65K. The BTC holder will make: (65-15)K x 66.6= 3.3 mill

    The option buyer will make: the calls will be worth 15K/bitcoin so: (15-3.6)K x 275=3.1 mill

    In short, BTC has to reach way over 65K to make this a BETTER deal for the option buyer instead of just holding bitcoins. So price has to go up about 350% just to beat holding the sto... I mean bitcoin outright.

    If we throw in the possibility of holding futures, instead of bitcoins (more bang for less bucks), that makes buying calls a really sucky deal.
     
    Last edited: Dec 26, 2017
    VPhantom likes this.
  3. A paltry 300% in crypto in a year? No thanks
     
  4. Visaria

    Visaria

    Your analysis is the p and l profile at expiry...if the price was reached well before that....then p &l would look a lot different
     
    johnarb likes this.
  5. sle

    sle

    All right, raise your hand please! How many of us think that this was self-trading by LedgerX to increase publicity?
     
    VPhantom likes this.
  6. ajacobson

    ajacobson

    On a CFTC regulated exchange. Imagine the fine...
     
  7. Perhaps it was a sell to open position to take advantage of OTM Call overpricing...
     
  8. Pekelo

    Pekelo

    You can't sell without a buyer.
     
  9. Yes but the position could have been a sell to open and the buyers/market makers simply hedge it off. However the initial bet was not necessarily a long call buy but could have been a short premium seller. market makers taking the other side and hedging off is not the same as an open buy position.
     
  10. sle

    sle

    If this was a real trade, it was definitely a client buying- back of the envelope this is about 275 vol and I cannot see anyone paying that (OTM or any strike for that matter) as a pure vol bet
     
    Last edited: Dec 27, 2017
    #10     Dec 27, 2017