Bitcoin (BTC) is unlikely to increase its bids after the mining rewards were cut in half in May 2020, depending on how the cryptocurrency options are valued.
The highest cryptocurrency is currently trading at around $ 8,800, which represents a gain of 20% on an annual basis.
Meanwhile, the options market is reporting the likelihood that prices will stay above the $ 8,000 mark by the end of September at the coin toss level, according to crypto derivatives research company Skew.
In other words, option traders aren’t sure if bitcoin will trade above the $ 8,000 mark four months after the rewards are cut in half – supposedly a bullish event. The probability was 65% a week ago when bitcoin was trading near $ 10,000, Skew co-founder and chief operating officer Emmanuel Goh told CoinDesk.
An option is a derivative that exchanges contacts between buyers and sellers, giving the buyer the right but not the obligation to buy or sell the underlying asset at a specific price no later than a specific date. A put option gives the owner the right to buy something while a put option gives the right to sell.
Bitcoin is slated to undergo its third reduction in operating rewards in half in May 2020. As the name suggests, the rewards per mined block will be cut in half from 12.5 BTC to 6.25 BTC. The process is repeated every four years and aims to curb inflation in the cryptocurrency.
Conventional wisdom, at least among bitcoin analysts, argues that halving the reward could create a supply deficit and put bitcoin on the road to new lifetime highs above $ 20,000.
“In about 200 days (69 days to half), the purchase [one] bitcoin will be out of reach of 99.8% of the earth’s population “, Jason Williams, co-founder and partner of Morgan Creek Digital tweeted on Sunday.
Historical data shows that the cryptocurrency rose sharply in the years following the previous halves, which had taken place in 2012 and 2016.
While halving may repeat history by rallying in 2021, the options market indicates a low probability of a significant upside this year.
The market sees a 3% probability that bitcoin will reach a new high above $ 20,000 by the end of June. Meanwhile, the probability of a rise to new records at the end of September is currently 6%.
In fact, the chances that the cryptocurrency market cycle will refresh (the highest from the lowest in the previous bear market) with a move above the June 2019 high of $ 13,880 at the end of June does not amount to only 11%.
Meanwhile, the probability of a September maturity greater than $ 14,000 is currently estimated at 16%.
The probabilities are calculated using the Black-Scholes formula, which is based on key parameters such as the prices of call options, the current price of bitcoin, the exercise prices of options, the rate d risk-free interest and maturity of options.
Halving isn’t always bullish
The odds in the options market should not surprise investors in litecoin (LTC), who saw the value of their holdings drop sharply following the halving of rewards on August 5, 2019.
On that day, the cryptocurrency was trading just above $ 100. However, by December, the price for the single litecoin had dropped below $ 50.
Its hash rate, or the computing power required to validate transactions on the blockchain, also dropped by 70% in the five months preceding December, as the reward was halved and the price drop that followed resulted in the profitability of mining. This forced the ineffective small miners to close their operations or switch to the exploitation of other currencies.
Gathering before halving?
Historically, bitcoin has set new market cycle highs during the halving calendar year, but before the event, according to Rekt Capital.
For example, the bitcoin bear market from the high of $ 1,150 in December 2013 faltered close to $ 150 in January 2015. The cryptocurrency then peaked at $ 502 in November 2015, confirming a bullish reversal.
Prices then fell to $ 365 in February 2016 before reaching a new cycle high of $ 778 in June – a month before the halving of rewards, which took place in July 2016.
The peak of $ 778 reached in June 2016 was the highest price from the bottom of the bear market of $ 150, but was well below the record (at the time) of $ 1,153, reached in December 2013.
Similar price behavior was observed in the months leading up to the 2012 halving of awards.
If the same thing happened again, the cryptocurrency would set a new cycle high above the June 2019 high of $ 13,880 over the next two months. The options market, however, indicates that history is unlikely to repeat itself.
Currently, the options market sees only a 3% chance that bitcoin will exceed $ 14,000 by the end of March.
The likelihood of a move above $ 10,000 in March is also fairly low at 21%.
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