Bitcoin witnessed a drop of nearly 7% shortly after its significant rise above $100,000, prompting several traders to brace for a potential price correction.

The cryptocurrency fell to a low of $92,144 on Friday but later found some stability at $97,851 as of 6:05 a.m. in London. This volatility was also reflected across the wider crypto market, coinciding with a halt in a rally fueled by President-elect Donald Trump’s endorsement of the sector.

A rise in demand for bearish positions, such as put options—which allow the holder to sell at a predetermined price within a specific timeframe—has been observed. Significant activity includes puts with strike prices of $95,000 and $100,000, as reported by Amberdata. Moreover, interest in puts around the $75,000 and $70,000 levels has surged.

“While there seems to be further growth potential, it’s reasonable to anticipate that investors will lock in some profits,” stated Josh Gilbert, a market analyst at eToro. “Historically, during bull markets, Bitcoin prices have often seen corrections ranging from 20% to 40%.”

Bitcoin, the leading digital asset, surged past $100,000 on Thursday, buoyed by hopes that Trump’s appointment of a crypto advocate as the new head of the US securities regulator will further propel the market into the mainstream.

Trump has committed to reversing the digital asset restrictions imposed by the Biden administration, aiming to position the US as the global leader in cryptocurrency. He has even backed the controversial proposal for a strategic national Bitcoin reserve, which former US Treasury Secretary Lawrence Summers has labeled “crazy.”

White House czar

On Thursday evening in the US, Trump announced via Truth Social that David Sacks would be the White House czar for artificial intelligence and the cryptocurrency sector. “He will create a legal framework to provide the clarity the crypto industry seeks and help it thrive in the US,” Trump remarked.

The president-elect’s support for cryptocurrencies is enhancing market sentiment, bolstered by $33 billion in net inflows into US Bitcoin exchange-traded funds this year. However, with the token climbing 45% since Election Day on November 5, there are concerns that the rally may require a breather.

“The recent surge in volatility appears to indicate a classic blow-off top,” commented Tony Sycamore, a market analyst at IG Australia Pty. “While we don’t see this as the conclusion of the Bitcoin bull run, it suggests we might be entering a consolidation phase in the upcoming days or weeks.”

Six-figure strikes

Other areas of the derivatives market reflect ongoing optimism extending into 2025. On the Deribit exchange, the highest open interest for options expiring at the end of January is for calls with strike prices of $110,000 and $120,000.

Trading volume for options on BlackRock’s iShares Bitcoin Trust, the leading fund for the token, soared on Thursday, with over 400,000 calls traded compared to nearly 190,000 puts, according to data from Bloomberg.

Among them, notable strategies included puts at $51 and $41 set to expire on January 17, totaling nearly 34,000 contracts traded. Subsequently, May 16 saw $58 calls and puts exchanged in two opening blocks of 12,000 options each.

© 2024 Bloomberg

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