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Posted by Naeem Aslam | 07/12/2017 11:52
Bitcoin crushed 15K today and momentum is still strong
Hedge funds would be joining the bitcoin party on 10th December
Big whales may bring correction in Bitcoin price
Is this going to be the next big leg in price discovery or the beginning of the crash market sceptics have been warning against for the biggest cryptocurrency? Bitcoin is on its 8th straight day of advance, crossing the level of $15,000 with trading volume hitting in excess of $13 billion on Thursday, marking a new all-time high of 15,242 for the currency. The price action marks a gain of almost $3,513 in just over 48 hours. The price advance comes amid speculations of a likely correction given the consistent overbought conditions in the market but bitcoin just seems to be defying gravity.
Next big event for the crypto currency is the futures listing on the CBOE on December 10th and on the CME, a week later, on December 18th. Both exchanges will be launching futures with different contract sizes but these contracts would be cash-settled. Now, what does this mean for the Bitcoin spot market and the price action going forward?
The Bitcoin cash market in its current form is more of a buy and hold market . The recent price drop of over 20% last week and the subsequent aggressive fading reinforces that investors are looking for sell-offs to build long positions. It is, in fact, easier to buy and hold Bitcoin than to short sell it, given the high transaction costs. So, it’s safe to say that Bitcoin market has a buyer bias implying that the market prices may not be in equilibrium.
Currently, higher prices benefit all players in the market, big or small. However, dragging Bitcoin into the futures market poses a risk of big players opening doors to short selling hell. Futures markets make it possible to short in decent size with a lot of liquidity, thus affecting the price discovery in the underlying asset market.
And, the fact that the Bitcoin contracts are cash settled, this equips these said players with a near- infinite supply of dollars to make profits on the other side of the market. This will open doors for quant aggressive traders, such as hedge funds and algorithm-driven funds, to use this futures market to enter Bitcoin trading with high levels of liquidity (in dollars, not the crypto currency itself) for aggressive short-selling and knock the prices really low. After all, futures market exists for hedging against risk, both upside and downside, and thus players now have an incentive to be on the short side and make profits hedging against the upside.
Now, the big question is, what opportunities does this event present from a trading/investing standpoint? We maysee Bitcoin as a low hanging fruit from two perspectives in a near term trade setup. First, from my last article, we think it would be wise to revise the price projection to $18K and it could reach there by December 10th (previous target was at 14K).
There is a lot of optimism in the market with players having access to new liquidity pools awaiting the futures launch. Given Bitcoin’s performance in the last seven trading sessions, specifically the last 48-72 hours, a price gain of another $1-2K doesn’t seem farfetched. Second, I do see a potential dip just after the futures start trading, a correction of up to 20-30%, which may present a good medium to long term opportunity to enter the market and/or build on long positions. I do see Bitcoin prices potentially reaching $25,000 by early next year.
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