Bitcoin: To the Moon or Bubble Burst?

The derivatives market is often a key factor in determining the liquidity and appeal of an asset. For example, if the underlying asset is worth $1B, its derivatives could be valued at $10 billion to $20 billion. This creates a massive pool of potential trading volume, where traders can buy or sell the asset without directly affecting its price. More trading volume attracts more investors, which can, in turn, lead to higher asset prices over time.

Bitcoin exchange-traded funds (ETFs) have just added options to their offerings—a move that could significantly reshape the landscape. This is a bigger deal than it may initially seem. Until now, the majority of Bitcoin derivatives have been traded on centralised crypto exchanges, platforms that many institutional investors tend to avoid due to concerns over security, regulation, and volatility.

With Bitcoin options now entering the ETF space, there is the potential to create a derivatives market that could be up to 20 times the size of Bitcoin's current market cap. If Bitcoin's market cap is around $2 trillion, this could mean a derivatives market worth $40 trillion.

For Bitcoin, $40 trillion in potential trading volume represents a seismic shift, opening the door to a new wave of institutional investment. It’s a game changer that could drive Bitcoin prices higher as the market matures and more players enter the space. In short, the addition of Bitcoin options to ETFs is setting the stage for a major evolution in how the asset is traded—and how investors approach it.

Crypto's Surge: Outperforming the S&P 500 Benchmark

Total Crypto Market Cap vs S&P 500

Image Source: TradingView

Over the past couple of weeks, the cryptocurrency market has been at an ultimate high due to the Donald Trump winning the 2024 US presidential election. The chart above compares the performance of the total cryptocurrency market capitalisation (blue line) against the S&P 500 index (red line). Over the time depicted, cryptocurrency returns have significantly outpaced those of the stock market, particularly in recent months. While the S&P 500 stocks exhibit steady, moderate growth indicative of traditional market behaviour, the cryptocurrency market has experienced sharp volatility, with notable peaks and troughs before its most recent rapid ascent.

Bitcoin Correction

Despite expectations that institutional investors or Bitcoin ETFs would drive Bitcoin’s price movement, recent data suggests that long-term holders have been the primary influence behind Bitcoin’s price correction. This correction has been driven by long-term investors beginning to distribute their holdings, as some doubt whether Trump can indeed drive Bitcoin's price higher.

Image Source: TradingView

This correction follows Bitcoin’s record-breaking monthly performance, which briefly surpassed $99,000 on November 22. Some analysts are still predicting a surge past $100,000 by the end of the month.

MicroStrategy Makes Record-Breaking Bitcoin Purchase

MicroStrategy has recently acquired an additional 51,780 BTC for approximately $4.6 billion, at an average price of $88,627 per Bitcoin. As of November 17, 2024, MicroStrategy holds a total of 331,200 BTC, acquired for around $16.5 billion at an average price of $49,874 per Bitcoin. This acquisition has led to a Bitcoin yield of 20.4% for the quarter-to-date (QTD) and 41.8% for the year-to-date (YTD).

Despite its ambitious Bitcoin strategy, MicroStrategy’s stock has faced volatility. While shares surged by 4% during pre-market trading on November 25, they closed the day down 1% at $418.

Image Source: CoinGecko

As Bitcoin continues to draw attention from both retail and institutional investors, the recent developments in its derivatives market and significant purchases by companies like MicroStrategy signal that the asset's journey is far from over. Whether Bitcoin’s price will maintain its upward momentum or face further corrections, one thing is clear: the future of Bitcoin trading is poised for significant change, setting the stage for a new chapter in the evolution of digital assets.