As reported by Bloomberg on December 6th, 2018, Bitcoin price options that were purchased for over $1 million U.S. dollars, mere days following the December 2017’s peak, will soon be waived off as completely worthless.
*Rocket Fuel Required*
The expiration date of the aforementioned contract is December 28th, 2018, meaning the price of Bitcoin would have to skyrocket over 1,400% if the bettor wants to profit off his ambitious bet.
The options purchased, which hold a notional value of US$13.75 million, have a strike price of $50,000 — meaning that BTC will have to rise above $50,000 for the contracts to be considered profitable. At the time of the vehicle’s initial purchase, BTC was situated around $16,000. This, of course, indicates that the individuals behind the wager — partners at BlockTower Capital — were expecting the flagship cryptocurrency to surge over 210% in twelve months’ time.
(chart courtesy of livecoinwatch.com)
However, since BTC’ value peaked at nearly $20,000, the price has grievously declined throughout the whole of 2018 — losing nearly 80% of its value from the all-time high established in the midst of 2017’s late-holiday season.
A Headache For Hedge Funds?
You may be wondering — who made this out-of-this-world bet?
That honor lies with Ari Paul, a managing partner at crypto fund BlockTower Capital. In an interview with CNBC, the crypto savant stated that he bought the options contracts back in December 2017, specifically through the U.S.-regulated LedgerX Bitcoin Options Exchange. Speaking with CNBC’s Fast Money segment, Paul outlined the strategy behind his investment decision, noting that he had sold some of his BTC, before purchasing the rights to the contract. He explained:
“I’m able to own less bitcoin and less cryptocurrency as a whole whilst still providing my investors with that optionality… But if Bitcoin falls 80 percent I get to lose less because I own less cryptocurrency.”
This unique strategy allows Paul, a long-time Bitcoin proponent, to minimize the risk that his fund is exposed to, whilst ensuring that he is exposed to the upside for the world’s largest cryptocurrency, potentially banking him and his investors a huge profit.
As displayed in the previous chart, the likelihood of Bitcoin price hitting even close to $50,000 strike is ambitious, to say the least. Although it seems Ari Paul was prepared for this worst-case scenario, the outcome of this situation will surely be seen as a huge disappointment for the fund’s investors.
Bloomberg stated that Paul didn’t disclose any information regarding the performance of his fund, but it was made clear that he was primed for a potential downturn in crypto asset valuations. BlockTower Capital recently refused to make a statement to Bloomberg on the matter.
2018 has been a dramatically disappointing year for Bitcoin and cryptocurrency as a whole. But as the saying goes, “Every cloud has a silver lining,” and 2019 may be shaping up to be the aforementioned silver lining in 2018’s dark, gloomy cloud.
With Nasdaq recently confirming its intentions to support Bitcoin futures contracts, while the Intercontinental Exchange-supported Bakkt slated to begin issuing its physically-backed Bitcoin futures by January 2019, the cryptosphere could see a large amount of liquidity pour (excuse the pun) into its markets.
Bull Run On The Horizon?
As reported last week, weekly Bitcoin price charts saw action move into oversold territory on the Relative Strength Index (RSI), which followed a near 45% decline. The last time something of this significance happened was back at the start of 2015, where the USD/BTC pair saw a jaw-dropping decline of 43 percent, piercing the oversold threshold on the RSI, before consolidating and staging a near-three-year rally.
(chart from finance.yahoo.com)
Bobby Lee, brother of Litecoin founder Charlie Lee, recently commented on Bitcoin’s past performance, citing that we could see the cryptocurrency bottom during January 2019, before making a recovery — similar to market performance between 2015-2017.
If history repeats perfectly, then the current bear market for #Bitcoin would bottom out at $2,500 next month, in Jan 2019.
And then the next rally would start in late 2020, peak out in Dec 2021 at $333,000, and then crash back down to $41,000 in Jan 2023.
Something like that?🙂 https://t.co/M8ljIVnt73
— Bobby Lee (@bobbyclee) December 7, 2018
Your Thoughts On The Bitcoin Price
Could 2019 be the start of something new for BTC and related technologies? Could the Bitcoin price finally establish during the next two months?
Let us know what you think in the comments below 🙂