Goldman Sachs will offer ether options and futures to its clients as the investment bank expands its cryptocurrency trading business, Bloomberg first reported.
“We’ve actually seen a lot of interest from clients who are eager to trade as they find these levels as a slightly more palatable entry point,” Mathew McDermott, head of digital assets at Goldman, told Bloomberg.
He continued: “We see it as a cleansing exercise to reduce some of the leverage and the excess in the system, especially from a retail perspective.”
The New York-based bank is expanding from its bitcoin offering after restarting its cryptocurrency trading desk to trade bitcoin futures earlier this year amid a boom in the popular coin. Goldman first set up a cryptocurrency desk in 2018.
The 47-year-old McDermott also told Bloomberg that Goldman has plans to facilitate trades via exchange-traded notes tracking bitcoin.
Yet a recent finding from crypto-asset broker Voyager revealed that 81% of respondents in a recent survey are more confident in the future of cryptocurrency following last month’s sell-off.
“Institutional adoption will continue,” McDermott said. “Despite the material price correction, we continue to see a significant amount of interest in this space.”
In March, that bank’s COO and president John Waldron said he has seen an increase in interest from his clients when it comes to investing in bitcoin.
“Client demand is rising,” Waldron said in a Wolfe Virtual FinTech Forum. “The pandemic has been a significant accelerant. There is no question in our mind there will be more digital commerce … and (use of) digital money.”
Bitcoin options traders have piled into bets that the world’s biggest cryptocurrency will fall below $40,000 by next month following an Elon Musk tweet-storm that sent the price tumbling to around $45,000 on Tuesday.
One exchange chief executive said there was little sign of a “buy-the-dip” mentality among bitcoin traders and investors appeared to be a lot more pessimistic this time around than after previous price falls.
There was a spike in activity on bitcoin derivatives markets on Monday, with the majority of flows going into bearish options, according to figures from data provider Skew.
Around $3.5 billion worth of options contracts changed hands after Musk suggested Tesla might sell its bitcoin holdings, compared to under $1.5 billion of trading volume on Friday. Musk’s tweets sent bitcoin tumbling as low as $42,100 before it rebounded somewhat, well off April’s record high of close to $65,000.
Data showed high trading volumes for put options with a strike price of $40,000 – effectively bets that the bitcoin price will fall below that level. A put option gives the buyer the right, but not the obligation, to sell an asset at a specified price within a set time period.
There was more than $130 million worth of open interest in $40,000 put options with a June 25 expiry date on Tuesday, according to bybt.com. That suggested a considerable number of options traders were betting the price would fall sharply by then.
“Yesterday we saw a lot of volume in the $40,000 puts,” Pankaj Balani, chief executive of crypto derivatives exchange Delta, told Insider.
Balani also said investors were reducing the level at which they were buying call options – effectively bets that the price will rise – suggesting pessimism about the outlook for bitcoin.
“In the previous dips, we had seen that the sentiment had not changed as much. This time around, we are seeing change of sentiment. We’re not seeing any signs of bottom-fishing,” he said.
“Consensus seems to be that it’s fallen quite sharply and it can fall a little more. So $35,000 to $38,000 is the zone where most traders are looking at.”
Options traders who had sold puts at around $40,000 – effectively taking the position that the price would not fall below that level – were now buying puts to cover their positions, Balani said.
The crypto exchange boss said action in the options market suggested bitcoin will remain range-bound between $35,000 and $50,000 until June.
They also said it is crucial that bitcoin find some support soon, or it could slide even further. However, many were confident that investors would be tempted to “buy the dip.”
Here’s what 9 experts said about bitcoin on Friday.
Joe Biden’s tax-hike plans spooked bitcoin investors
“The plunge came after Biden unveiled a raft of proposed tax reforms yesterday – including a plan to nearly double capital gains tax to 39.6% for people earners above a $1 million threshold.
“There is also likely some interplay with the broader stagnation across equities, which could be driving down risk-on assets,” Matt Blom, global head of sales trading at exchange Diginex, said.
“It is clear that bitcoin is more sensitive to capital gains tax threats than most asset classes. The threat of regulation, either directly in developed markets, or indirectly via the taxman, has always been crypto’s Achilles’s heel, in my opinion,” Jeffrey Halley, senior market analyst at currency firm Oanda, said.
“[The] news that someone in Turkey took off with the keys to their cryptocurrency exchange, leaving 390,000 users unable to access their coins and hundreds of millions of dollars missing, was another blow to the industry.
“Perhaps some people are now thinking that this is the high-water mark for cryptocurrencies and they should take their profits while they can still access their coins,” Marshall Gittler, head of investment research at BDSwiss, said.
Bitcoin derivatives trading and borrowing added to volatility
“We are currently seeing a significantly over-leveraged retail market so when there is bearish newsflow like Biden’s proposed capital gains tax increase, we tend to see additional sell-offs which accelerate the price decrease.
“When the bitcoin mining rates recently decreased 50% and the price dropped to around $55k and $57k, the market was thrown off-guard and over $10 billion in positions were liquidated,” Janis Legler, chief product officer and head of research at fintech Mode, said.
“Bitcoin’s crash was precipitated primarily by massive derivatives deleveraging into thin weekend liquidity,” Shane Ai, head of product R&D at exchange Bybit, said.
“Estimated leverage ratios from all exchanges are very high… which opens the possibility for a cascading liquidation run towards which could lead to even further price dips if long term buyers don’t support the market here,”Anton Chashchin, managing partner at CEX.IO Prime Trading, said.
“Bitcoin is having a bit of a moment, but let’s put it into perspective. We’ve seen big gains this year and we were always due a pullback. It’s not only bitcoin that has fallen back, it’s the whole crypto space,” Michael Hewson, chief market analyst at trading platform CMC Markets, said.
Bitcoin could have further to fall, charts suggest
“[According] to the charts, the downside breakout of bitcoin through $56,000 has a target of $42,000. That might come this weekend, or next week or perhaps not at all… In the meantime, don’t hate me for being bearish bitcoin in the near term. I’m just following the charts,” Halley said.
“We have found that bitcoin has exhibited a decline averaging 40% at least once every year before recovering to new highs.
“Therefore, should this latest decline follow true to form then we wouldn’t be surprised to see bitcoin drop to around $39,000 USD before then recovering and reaching new all-time highs,” Gavin Smith, CEO at crypto fintech Panxora Group, said.
“If we see a fall back below $45,000 then we could see a larger move, but overall this feels like a kneejerk reaction to talk of new tax proposals by the Biden administration,” Hewson said.
Yet many investors could be tempted to buy the dip
“Although the market appears to be bearish today, we are still fairly positive on bitcoin’s future outlook in the coming months. Despite that, we remain cautious as we continue to monitor macroeconomic climate, especially the Fed’s stance against the inflation rate.
“There is a lot of speculation, and there isn’t really a good way to predict the future price,” Bobby Ong, co-founder of CoinGecko, said.
“There could be further short-term drops in price from here, but the fundamentals are still looking incredibly strong for bitcoin.
“We are seeing a significant shortage of bitcoin supply and new institutional long-term holders piling in… We still see strong demand for bitcoin at these levels, with a lot of Mode customers ‘buying the dip’,” Legler said.
“The total number of wallets held by whales (i.e. over 1,000 BTC) has grown since the beginning of last week’s sell-off, showing those with the firepower will likely be quite happy to accumulate Bitcoin at a sub $50,000 handle.
“I anticipate that retail investors will likely follow suit and soon too begin to start buying into the dip until bitcoin finds support at circa $55,000,” Blom said.
A record $3.7 billion worth of Bitcoin options are set to expire on January 29, as speculation ramps up following the recent volatility in the cryptocurrency’s price and growth in interest in its derivatives.
On Monday morning, open options contracts were worth around 245,700 Bitcoin – or roughly $9.1 billion – according to cryptocurrency data analytics website bybt.com.
Bitcoin options are contracts that give investors the right, but not the obligation, to buy or sell the cryptocurrency at a specified price within a set time period. They give investors the chance to make money by betting on which way the price will go, without having to trade the digital currency itself.
Deribit – the exchange that currently facilitates the most Bitcoin options trading – began offering the products in 2018. But interest has risen sharply over the last few months as the Bitcoin price has surged towards an all-time high near $42,000 earlier this month. It stood at around $36,960 on Monday morning.
Options contracts worth around 101,000 Bitcoin – or $3.7 billion at Monday’s prices – are to to expire on January 29, bybt.com’s data showed, although not every option will result in a trade. That is more than the previous record of around $2.4 billion seen on 25 December, as noted by Cointelegraph.
The options show that speculators are bullish about Bitcoin. As of Monday the open interest in “calls” (which are broadly bets that prices will rise) was considerably bigger than the open interest in “puts” (bets the price will fall).
“It reflects just how volatile [Bitcoin] has become, even by its own standards, over the last couple of months,” said Craig Erlam, market analyst at currency firm Oanda.
“The moves we’re seeing on a daily basis now are incredible so it’s natural that options are being more utilized.”
Bitcoin’s price has soared more than 300% over the last year and more than 60% in the last month.
Analysts say central banks and governments flooding economies with cash amid the coronavirus pandemic has been a key driver, while worries about inflation and currency devaluation are also factors.
Yet the Bitcoin price is highly volatile, regularly swinging more than 10% each day. After hitting its record-high of more than $41,000 on 8 January it fell to close to $30,000 a few days later before rising again.
Wanting a piece of the action, investors have piled into products that give them exposure to Bitcoin.
Germany’s BTCetc Bitcoin Exchange Traded Crypto has seen trading volumes of more than €50 million ($60 million) per day on average so far this year according to Deutsche Boerse. Grayscale’s Bitcoin Trust has also boomed.
Options have also become an increasingly popular way of speculating on Bitcoin. The market has been aided by respected institutions such as CME Group moving in.
Nicholas Pelecanos, head of trading at blockchain company NEM, said: “Due to the complexity involved with trading, options volumes give us a good indication of the number of sophisticated investors that have been trading Bitcoin.”
Seamus Donoghue, vice president of sales at digital currency security firm Metaco, said: “Institutional adoption of Bitcoin should drive continued underlying growth for futures and options volumes.”
Yet Erlam was more skeptical about what the rise in options trading meant. “The creation and adoption of these instruments is a step forward but doesn’t take away from just how highly speculative an instrument it still is,” he said.
Analysts at JPMorgan last week said Bitcoin may need to break past $40,000 mark again in the near future if the price is to rise further. If it does not pick up soon then “momentum” funds that follow trends could force the price lower, they warned.