Massive bitcoin call spreads target $72,000 by month end, right when the Fed meets
Traders have bought $2.5 billion in notional bitcoin call spreads on Deribit, targeting $72,000 by July 31. The timing aligns with the Fed’s July 29 interest rate decision, with markets currently favoring a hold.
Intelligence analysis by Llama
Large traders are betting on a BTC price rise to $72,000 by the end of the month, using call options on Deribit. The trade targets the July 31 settlement, two days after the Federal Reserve's July 29 interest rate decision.
Imagine you're buying a ticket that pays out if bitcoin's price rises to $70,000. But you're also selling away the gains above $72,000 to lower the cost of that ticket. This is a strategy called a bull call spread, and it's being used by large traders to bet on a further rise in bitcoin's value.
Analysis
A $60B Vote of Confidence
The recent surge in bitcoin's price has led to a significant increase in the number of large traders betting on a further rise in the cryptocurrency's value. According to Deribit, a total of 20,000 contracts of the $70,000 call expiring July 31 were purchased alongside a sale of 20,000 contracts of the $72,000 call of the same expiry. This amounts to $2.5 billion in notional value, the dollar value of 40,000 contracts, each representing 1 bitcoin.
This is known as a bull call spread, a strategy initiated when expecting a moderate rise in the price of the underlying asset. Think of it as buying a ticket that pays out if bitcoin rises to $70,000, while selling away the gains above $72,000 to lower the cost of that ticket. The trade-off: a lower entry cost and lower maximum loss if the market stays flat or falls, but at the cost of giving up any gains beyond $72,000.
The timing is notable for two reasons. First, it suggests confidence in bitcoin's recent bounce to $64,000 from under $58,000 earlier this month. More importantly, the trade targets the July 31 settlement, two days after the Federal Reserve's July 29 interest rate decision. The call spread flow suggests that at least some large traders expect the meeting to serve as a catalyst for a move toward $72,000.
Fed funds futures currently point to a hold at the July meeting, with most trackers putting the probability of the central bank keeping its benchmark rate unchanged at 3.5%-3.75% in the 75%-80% range. The remaining odds are split between a rate hike and, to a lesser extent, a cut. Rate-hike fears have ebbed following June inflation data, which showed a sharp deceleration in price pressures at both the consumer and producer levels. Much of the relief traces to a sharp pullback in oil prices during the month, tied to a ceasefire between the U.S. and Iran; core inflation, which strips out food and energy, was flat. However, tensions between the U.S. and Iran have escalated sharply this week, with fresh strikes disrupting oil flows through the Strait of Hormuz. Both WTI and Brent have surged by most since March. That has some analysts calling the June inflation relief backward-looking and urging caution, since the data predates this week's flare-up.
But for now, at least some large traders are looking past the geopolitical noise and betting on continued bitcoin price gains.
Key points
- Large traders have bought $2.5 billion in notional bitcoin call spreads on Deribit, targeting $72,000 by July 31.
- The trade targets the July 31 settlement, two days after the Federal Reserve's July 29 interest rate decision.
- Fed funds futures currently point to a hold at the July meeting, with most trackers putting the probability of the central bank keeping its benchmark rate unchanged at 3.5%-3.75% in the 75%-80% range.
- Rate-hike fears have ebbed following June inflation data, which showed a sharp deceleration in price pressures at both the consumer and producer levels.
If this development plays out positively, it could lead to a further rise in bitcoin's price, potentially reaching $72,000 by the end of the month. This would be a significant increase in value and could lead to a surge in investor confidence in the cryptocurrency.
However, there are also risks associated with this trade. If the Federal Reserve decides to raise interest rates, it could lead to a decrease in demand for bitcoin and a subsequent drop in its price. Additionally, the recent escalation in tensions between the U.S. and Iran could lead to a further increase in oil prices, which could negatively impact the global economy and lead to a decrease in bitcoin's value.
