Bitcoin: Is the Market Over-Extended or on the Verge of Explosive Gains?

Why 2023 Could Mirror 2020, and Why Bitcoin is Primed to Reach $50,000

2023 Another 2020 with Bitcoin Heading to $50k

So, Bitcoin, the digital gold, has been on fire lately, reaching new heights in 2023. But here’s the million-dollar question: Have we reached a peak or is there still more to come? To answer this burning question, let’s dive into the impressive world of crypto options market positioning.

Now, imagine the year 2020. Remember that exhilarating rally in the fourth quarter? Well, hold on to your hats because it turns out that Bitcoin’s returns in 2023 are following a strikingly similar narrative. It’s almost like déjà vu, except with even more zeros and a splash of excitement.

Looking at the current options market, we find something intriguing. The implied volatility of options, which represents investors’ bets on Bitcoin’s future realized volatility, is hovering near its 2023 peak. Now, why is that important? Well, it suggests that the market is already factoring in the explosive upside potential that we’re all eagerly anticipating. It’s like buying a ticket to the moon before the spaceship even takes off!

But hold on, my friends, let’s not get too carried away just yet. If we take a trip down memory lane and look at Bitcoin’s implied volatility over the past four years, we’ll notice something interesting. Despite its recent surge, BTC’s volatility remains relatively subdued. In other words, it hasn’t unleashed its full potential for a mind-blowing rally, like a frantic rollercoaster ride that keeps surprising us with twists and turns. So, maybe, just maybe, there’s even more excitement waiting for us around the corner.

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Oh, but the fun doesn’t stop there! Let’s compare the historical futures basis today with that of January 1, 2020. Back in the day, the futures basis on Deribit was a whopping 20% annualized, equivalent to 17 times the 10-year risk-free rate. Fast forward to now, and what do we have? A futures basis of around 10% or 2.4 times the equivalent risk-free rate. Now, these numbers don’t guarantee higher spot prices, but they sure do scream that the potential buying power is just standing there, waiting to jump into the game.

Before we wrap up this crypto rollercoaster ride, there’s one more thing we need to talk about – the Variance Risk Premium (VRP). This fancy term refers to the connection between the implied volatility option traders are willing to pay and the actual volatility that Bitcoin is experiencing. Here’s the catch: the VRP has been widening since mid-October. Option traders have been shelling out a significant premium over realized volatility in BTC. You know what that means? They’re not just expecting a little sizzle; they’re gearing up for an explosion of fireworks!

We’re now witnessing an intriguing twist in the tale. The implied volatility for January’s option expiration month is sky-high. Why, you ask? Well, it’s all about the anticipation surrounding the Securities and Exchange Commission’s decision on spot Bitcoin ETFs. Just imagine all the market shuffling and shenanigans that could happen once that green light is given!

Now, let’s address the elephant in the room. Is this high implied volatility a sign that option buyers are making overpriced bets? Or is it an indicator of more astonishing Bitcoin volatility to come? We’ll just have to sit back, buckle up, and enjoy the show.

So, fellow investors, what’s your take on all this? Are you boarding the Bitcoin rollercoaster or waiting for the fireworks to settle? Let the comments section be filled with your thoughts, fears, and perhaps some moon-bound predictions.

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