Bitcoin's bull run may be set to intensify as the market expects a recovery in business demand spurred by Tesla's recent investment (Tesla shares - ticker TSLA) in the cryptocurrency.
Positive spiral effect on bitcoin prices likely
“Prices could fly very high, I expect other heavyweights to follow suit,” said trader and analyst Alex Kruger of Tesla's purchase of bitcoin (BTC).
On Monday, the electric car maker revealed its $ 1,5 billion investment in bitcoin, as well as considering acquiring more digital assets, pushing the price of bitcoin higher.
Although several publicly traded companies such as MicroStrategy have already adopted bitcoin as a treasury asset in recent months, Tesla's choice is notable given that it is the first Fortune 500 company to diversify cash in the cryptocurrency.
"While the actual amount is not high, pointing a way and market reflexivity to project other global market leaders to do the same will have a positive spiral effect on prices," said QCP Capital based in Singapore on its Telegram channel.
Reflexivity is a theory that a positive feedback loop between expectations and economic fundamentals can produce a substantial rise in prices. Tesla's purchase of bitcoin may have validated the long-term bullish narrative that cryptocurrency serves as a reserve asset. More buyers, therefore, could enter the market, putting upward pressure on prices.
How the bitcoin options market reacted
Investor interest in call options (bullish bets) has now increased, which is a sign that investors are positioning themselves for future price hikes. “We are seeing high volume across the board in call options ranging from $ 56.000 to $ 72.000,” said Matthew Dibb, co-founder and COO of Stack Funds.
“If the options market is an indication of enthusiasm among investors, we will go much higher,” added Dibb. However, the increase in call option activity from $ 52.000 to $ 72.000 does not necessarily mean that traders are expecting a bull market spike around these levels.
Furthermore, trying to predict an accurate topside target is pointless, as the cryptocurrency is in a multi-year bull market, according to Kruger. As of press time, bitcoin is trading more or less steadily over the 24 hours around $ 46.500.
The "Elon Musk rally" set $ 42.500 as a new support threshold, and prices could rise to $ 50.000 in the coming weeks, according to Dibb. The cryptocurrency could come under some selling pressure if regulators express concerns about Tesla's plans to adopt bitcoin as a means of payment for its vehicles.
However, Kruger isn't worried about a potential regulatory hurdle. "The real concern should be" I have enough exposure to cryptocurrencies "and not" the regulators are going to crash the market, "he said.
