So, I’ve been hearing about a theory that would explain why this year Bitcoin hasn’t gone up despite almost everything doing so (gold, silver, real estate, stock market).
According to the theory, large Bitcoin holders are selling call options on Bitcoin to obtain income. This is how it works:
Let’s say I own 20,000 Bitcoin and want to obtain income. I can take 10,000 Bitcoin and sell covered calls. Today, BTC price is around $88K. I sell covered calls with a strike price of $100K with a 1-month expiry. If the price keeps below $100K I keep my Bitcoin and earn a premium. If the price reaches $100K I must sell my 10,000 Bitcoin stash that I put for the covered call.
This may seem risky thinking that I only have 20,000 Bitcoin but I may have 50,000 or 100,000 Bitcoin and sell covered calls with just 10 or 20% of my holdings. Only the 10,000 Bitcoin that I put up for covered calls are a part of the trading volume, thus affecting the price. The rest of my holdings don’t affect the price.
You don’t need to make a great mental effort to see how this suppresses upside price action.
I have seen this theory commented on different places but just to provide a link as reference here is one.
Bitcoin Long-Term Holders Suppress Price Through Covered Calls, Says Market Analyst Jeff Park
What do you think about it?
