In the past two weeks, the upward momentum of Bitcoin price has been weak. After struggling to rebound and breaking through the historical high near $20,000, it has fallen sharply. From December 8th to 9th, the price of BTC on Binance fell from $19,167 to $17,650, a drop of about 9%. BTC also experienced a sharp drop in November. On November 26, the price of BTC fell back to $16,188, a drop of 8.6% in just two days.

There are three potential reasons for the sharp drop in bitcoin prices since November. First, Bitcoin's highs near $20,000 are becoming a difficult resistance to break. Second, since the beginning of December, the amount of Bitcoin deposited by high-net-worth investors on exchanges has begun to increase. Third, after a peak on December 1, the overall trading volume of the Bitcoin market has declined.

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Throughout November and December, the Bitcoin options market has been showing a strong accumulation trend. When Bitcoin sees a sharp correction, such as when Bitcoin fell to $16,188 on Binance on November 26, buyer demand surges across options exchanges. Retail exchanges such as Coinbase have also seen a sizable increase in buyer activity over the same period, leading analysts to speculate that the demand comes primarily from investors in the United States.

In the options market, there are two main types of contracts: calls and puts. When the price of an asset appreciates, the value of the call contract increases. When the price of an asset falls, the value of the put contract rises. Simply put, a call contract is a buy order, and a put contract is a sell order.

In late November, analysts at Deribit said bullish contracts dominated the market, suggesting a clear buying trend on dips in the U.S. market. This trend suggests that buyers have started buying aggressively from the $16,000 level, suggesting they may expect Bitcoin's uptrend to continue for a long time. Analysts said:

“A day before the 50,000+ OI (open interest) expiry, a large amount of derivatives liquidation is a catalyst for large option volume. The cumulative trading volume is very large, mainly fast money + risk management. But the US Holidays limited institutional trading. Bullish contracts dominated. Limited evidence of BTFD buying. Big bulls already bullish."

Although retail investors will also choose option contracts, because options are more complicated than futures contracts, it is usually professional traders who use option products. Deribit said that since Bitcoin broke through the $13,000 price point, the continued accumulation of coins executed according to the TWAP (Time Weighted Average Price) algorithm has given people additional confidence in Bitcoin. Institutions and hedge funds usually use the TWAP algorithm to gradually buy an asset.

Order books and volume trends on retail exchanges show similar trends. BlockTower trader Avi Felman spotted a shift from “weak hands” to “strong hands” during Bitcoin’s sharp pullback on Nov. 28.

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There are several main reasons why traders on options and retail exchanges may be confident about Bitcoin’s medium-term prospects. The most obvious reason is that more and more institutional investors are beginning to accept Bitcoin as a store of value.

In the five months since MicroStrategy's massive $425 million investment in bitcoin, institutional interest in the cryptocurrency has increased markedly. Recently, Laurence Fink, CEO of BlackRock, the world's largest asset management company, stated that Bitcoin may evolve into a global asset.

Fink’s acknowledgment of Bitcoin’s potential to become a global asset is especially notable given Fink’s skepticism about Bitcoin in the past. In October 2017, Fink dismissed the technology, saying: "Bitcoin's existence just shows how big the world's appetite for money laundering is."

Just before Fink's latest positive comments on Bitcoin, Wall Street titans such as Paul Tudor Jones expressed bullishness on Bitcoin's long-term trend. The allure of Bitcoin as an inflation hedge could allow investors to see huge growth over the next decade, and this allure is likely to stoke institutional demand for Bitcoin. This demand is evident in the increase in trading activity on institutional-focused platforms, including the CME Bitcoin Futures Exchange and Grayscale’s Bitcoin Investment Trust.

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