Would you bet $1 mln that Bitcoin will hit $50,000 by the end of 2018? According to data from LedgerX, a market for Bitcoin derivatives, one investor has already done just that, purchasing nearly $1 mln in Bitcoin options with a $50,000 call.
What such a bet means is that if this time next year the price is less than $50,000, the options will be worthless and the owner will lose the full $1 mln investment. However, if Bitcoin’s price exceeds $50,000 by next December, the owner of the options will have the right to buy 275 Bitcoins for $50,000 a coin, for a total transaction of about $13.8 mln.
Depending on by how much the price exceeds $50,000 a year from now, the bet could potentially be very lucrative. Although some investors have predicted BTC will eventually reach $1 mln a coin, they remain vague about when exactly.
While unwilling to disclose who placed the options, LedgerX CEO Paul Chou indicated the investor was likely an institution, saying:
“Without a doubt, there are institutions out there that are looking at these types of trades or have done these types of trades. It’s not an individual, let’s put it that way.”
Rampant speculation or emerging stability?
The inclusion of derivatives provides a number of advantages for the Bitcoin market but also opens the door for highly risky trades. Jeff Mahony, CEO of UbiquiCoin told Cointelegraph:
"Derivatives markets are generally favorable for the underlying securities because they provide the opportunity for more sophisticated institutional investors to enter the market, which generally increases price stability. However, it also creates the opportunity for significantly more speculation and the risk of investors trying to “swing for the fences” based on speculation rather than fundamental analysis.”