Bitcoin Plunges 7% After Surpassing $100,000: Bearish Options Surge, Correction or End of the Bull Run?

Bitcoin Plunges 7% After Surpassing $100,000: Bearish Options Surge, Correction or End of the Bull Run?Bitcoin, the world's largest cryptocurrency by market capitalization, experienced a sharp 7% correction within a single day after historically breaking the $100,000 barrier, sparking widespread market attention. This event not only prompted cryptocurrency traders to employ hedging strategies but also ignited intense debate regarding the future trajectory of the Bitcoin bull market

Bitcoin Plunges 7% After Surpassing $100,000: Bearish Options Surge, Correction or End of the Bull Run?

Bitcoin, the world's largest cryptocurrency by market capitalization, experienced a sharp 7% correction within a single day after historically breaking the $100,000 barrier, sparking widespread market attention. This event not only prompted cryptocurrency traders to employ hedging strategies but also ignited intense debate regarding the future trajectory of the Bitcoin bull market. This article delves into the underlying causes of this price volatility, incorporating market data and expert opinions to explore potential future trends.

Bitcoin Flash Crash: Surge in Demand for Put Options

After breaching the $100,000 mark, Bitcoin's price rapidly retreated to $92,144, representing a near 7% decline. This dramatic fluctuation prompted traders to actively seek hedging strategies, leading to a significant increase in demand for put options. According to Amberdata, put options with strike prices of $95,000 and $100,000 exhibited the largest open interest and highest premiums over the past 24 hours. Simultaneously, demand for put options in the $75,000 and $70,000 range also surged, suggesting a potential Bitcoin retracement towards this area.

Luke Nolan, a research associate at CoinShares, a crypto asset management company, noted that the bulk of bearish open interest is concentrated at the end of December and January, with a smaller portion at the end of February. "Hedging such a rapid surge in a very short timeframe to account for any correction or surprise crash is a normal trading strategy," he explained.

Tony Sycamore, a market analyst at IG Australia Pty, described the past 24 hours' volatility as exhibiting "classic parabolic characteristics." He believes that while this doesn't necessarily signal the end of the Bitcoin bull market, it does indicate a consolidation phase in the coming days or weeks.

Soaring Leverage: Increased Market Risk

Funding rates, a key indicator measuring leverage in cryptocurrency futures, rapidly approached their highest levels in the past 24 hours. This suggests a significant increase in trader demand for hedging against downside risk in cryptocurrencies like Bitcoin. They are willing to pay high premiums to increase their long or short bets through perpetual derivative contracts a common derivative trading method to double down on a Bitcoin price movement prediction.

Brian Strugatz, head of trading at cryptocurrency prime brokerage FalconX, stated: "Bitcoin's recent surge above $100,000 has driven a sharp increase in funding rates, nearing the year's high in March and approaching the all-time high set in Q4 2021. This pattern is consistent with previous cryptocurrency bull markets, where surging funding rates often accompany strong price momentum, reflecting strong demand for highly leveraged positions."

Bullish Sentiment Persists: Long-Term Optimism

Despite the surge in demand for put options, overall positioning in the derivatives market remains bullish. Data from Deribit shows that while a significant volume of put options is concentrated around early next year expirations, the total open interest of these puts is demonstrably low compared to the open interest of call options expiring around the same time.

Amberdata reveals the largest price increases in short-term call options over the past 24 hours occurred in the $100,000-$110,000 strike price range, particularly those slightly above $100,000. Jack Ostrovosky, a trader at Wintermute OTC, pointed out that a significant number of naked calls were traded, some expiring on December 7th with a $100,000 strike price, while January 25th call options were concentrated in the $110,000-$160,000 range.

Chicago Mercantile Exchange (CME) Bitcoin futures contracts also display strong bullish sentiment, with all Bitcoin futures contracts trading at significant premiums. The options market on Deribit, along with options bets on the newly launched BlackRock spot Bitcoin exchange-traded fund (Bitcoin spot ETF), point toward an overall bullish outlook for Bitcoin. Gabriel Selby, head of research at CFBenchmarks, notes that in the options market for IBIT, the world's largest Bitcoin ETF, the majority of open interest is clearly skewed toward out-of-the-money call options.

Institutional Investors Remain Bullish: Long-Term Price Predictions

Top-tier Wall Street investment firms remain optimistic about Bitcoin's long-term prospects. Bernstein predicts a Bitcoin price of $200,000 by the end of 2025, believing it will ultimately replace gold as the new "store of value." Standard Chartered holds a similar view, forecasting a $200,000 price by the end of 2025 and expecting $125,000 by the end of this year. Prominent US venture capitalist Tim Draper even predicts a Bitcoin price around $120,000 by the end of this year and potentially $250,000 by 2025.

Correction or End of the Bull Run?

eToro's market analysis team considers this correction a "normal adjustment within a bull market." They point out that 20% to 40% price drops in Bitcoin were not uncommon during previous bull runs. "While it feels like we still have room to run, profit-taking from investors is to be expected," they stated.

Bohan Jiang, head of OTC options trading at Abra, suggests that the rapid rise in funding rates could lay the groundwork for a short-term market correction, potentially followed by a new "main uptrend." He believes that such high funding rates are usually temporary but can also be very dangerous, as they may persist for longer than anticipated, implying significantly heightened market volatility. Nathaniel Cohen, co-founder of digital asset hedge fund INDIGOFund, agrees that funding rates are a good gauge of market overheating, with excessively high rates often preceding short-term corrections.

Conclusion

Bitcoin's retracement after surpassing $100,000 has sparked concerns about the bull market's direction. While demand for put options has surged and funding rates have soared, overall positioning in the derivatives market remains bullish, and institutional investors maintain a long-term optimistic outlook. Whether this correction represents a normal bull market adjustment or signals the end of the bull run remains to be seen. Future trends will depend on various factors, including macroeconomic conditions, regulatory policies, and market sentiment. Closely monitoring market dynamics and exercising caution in investment strategies will be key to navigating market fluctuations.