What is halving and what are its after-effects? What will be the BTC scenario after halving?
Well, the answer is different from different perspectives. Let’s look at what is halving first. It is a phenomenon occurring every 4 years in which the total Bitcoins entering the market in every 10min is halved. Yes, the process is to cut off the supply of Bitcoin from the market.
This has already taken place 2 times where it started with 50 BTC per 10 min to 25 and then to 12.5. This trend is going to be followed again and the rate will come down to 6.25 per 10 min.
The clear impact it will have on the Bitcoin prices can be understood with a demand and supply concept. This is a case of cutting off the supply and the demand is made constant. In such a case as Bitcoins will be less in the market and its buyers will be more the price of Bitcoin will boost up making it cross the $8k mark. This is what is expected but options and put and call ratio tell us a different story. Let hue have a brief look at it.
A bearish scenario of put to call ratio
The put to call ratio is a measure of all the puts options versus all the call options. This put to call ratio has increased from 0.46 to 0.62 in a month’s time. The scenario of put to call ratio increasing will mean that miners are investing more and are hedging their positions to overcome the halving effect. This was observed in Bitcoin Cash and Bitcoin SV halving.
Usually, an increased put to call ratio will lead to a bearish scenario but the situation is different here.
“I think the majority of people are wrong. A rising put/call ratio should be bullish for BTC price as most of those puts will expire worthlessly. Puts are also a good hedging (aka insurance) instrument so people that are holding bitcoin might be scared that mining will be in trouble and they are buying puts to protect their positions.” Says a Bitcoin trader and YouTuber Tone Vays.
The stock to flow model estimates that the value will be 10x in the coming 1-2 years. But the market sentiment from the option market suggests that halving will not increase the BTC prices. Let us have a look at it.
Impact of halving and the option market.
An option is a type of derivative contract that gives the buyer the power to sell the asset at a strike price in the predetermined time. Open interests in the options market have been increasing from the start of April with a deribit holding of market shares.
The total open interest has claimed up to $623 million. Many big firms and companies are showing their open interest in option contracts. For example, CME shows an open interest of about $11 million which is double from the start of April.
Seemingly when the open interest is rising, unregulated exchanges will dominate the market when it comes to options. Deribit holding most of the unregulated shares.
Unregulated exchanges add up to 92% of the total, of which 87% is held by deribit and 5% is held by Okex. Deribit currently has $542 million in open interest for Bitcoin options.
Meanwhile, LedgerX is currently the most popular regulated exchange for BTC options, with $35 million or a 6% market share. The options market does not show its expectation towards the increase in the prices of Bitcoin after halving. It contradicts other estimations and methodology.