Earlier this week, according to the Wall Street Journal, an unknown trader decided to place a million-dollar bet on bitcoin’s price reaching $50,000 by the end of next year. The report uses trading data from LedgerX, the first U.S. exchange to list bitcoin derivatives, that shows someone paid $990,000 for the right to buy 275 BTC on December 28, 2018, at $50,000 per coin.
According to Business Insider, the unidentified trader was actually cryptocurrency hedge fund BlockTower Capital. The fund’s bet was made using a call option, a contract that gives its buyer the right to buy an asset at a specific price, on or before a set date. These options allow for that specific price, regardless of its current market price.
BlockTower Capital paid an average of $3,600 per bitcoin, in order to lock its price at $50,000 by the end of 2018. To even break even, the cryptocurrency’s price will have to be at least $53,600 at the time, and the fund will pay about $14,740,000 for the 275 bitcoins. However, if the cryptocurrency’s price is at $60,000, for example, the fund will have nearly doubled its money.
The hedge fund is among the best-known in the crypto space, which already includes over 175 firms. BlockTower was founded by Ari Paul and Matthew Goetz, a former portfolio manager at the University of Chicago and a former vice president at Goldman Sachs, respectively.
Curiously, when the Wall Street Journal reported on the move, Ari Paul tweeted:
I wonder who bought these? ? https://t.co/gIXFW0d0hm
— Ari Paul (@AriDavidPaul) December 21, 2017
In a subsequent tweet, Paul added: “One thing to understand with options: a deep out of the money call is not a bet that something *will* happen, it’s a bet that something *might* happen. Risk a little to win a lot.”
In other tweets, he further revealed how far his math went, stating – just as above – the break-even point, and adding to it that if Bitcoin ends 2018 at $70,000 the fund will have made five times its money, and that if it ends at $100,000 it will make 14 times its money. Last but not least, if the flagship cryptocurrency ends the year at $200,000, it will make 45 times its money.
At press time, one Bitcoin is currently trading at $14,891, down from an all-time high of over $19,700 from earlier this month. The cryptocurrency has been recovering from a correction that saw its price drop below $10,500 on some exchanges
This year, the cryptocurrency surged over 1,400% and if its surge keeps going throughout 2018, a $200,000 target is definitely possible provided the cryptocurrency keeps growing at the rate it grew this year.