Bitcoin (BTC) is unlikely to get bid up after the May 2020 mining-reward halving, based on the way the cryptocurrency’s options are valued.

The top cryptocurrency is currently trading around $8,800, representing an 20 percent gain on a year-to-date basis.

Meanwhile, the options market is reporting the probability of prices holding above the $8,000 mark by the end of September at coin toss levels, according to crypto derivatives research firm Skew. 

To put it another way, option traders are not sure if bitcoin will trade above the $8,000 mark four months after reward halving – supposedly a price-bullish event. The probability stood at 65 percent a week ago when bitcoin was trading near $10,000, Skew’s co-founder and chief operating officer, Emmanuel Goh, told CoinDesk.  

An option is a derivative that trades contacts between buyers and sellers, giving the purchaser the right but not the obligation to buy or sell the underlying asset at a specific price on or before a specific date. A call option gives its owner the right to buy something while a put option gives the right to sell. 

Bitcoin is set to undergo its third mining-reward halving sometime in May 2020. As the name suggests, the rewards per block mined will be halved from current 12.5 BTC to 6.25 BTC. The process is repeated every four years and is aimed at curbing inflation in the cryptocurrency. 

Conventional wisdom, at least among bitcoin analysts, holds that the reward halving could create supply deficit and put bitcoin on the path to new lifetime highs above $20,000. 

“In approximately 200 days (69 days unil the halving) buying [one] bitcoin will be out of the reach of 99.8 percent of the population of the earth,” Jason Williams, co-founder and partner at Morgan Creek Digital tweeted on Sunday. 

Historical data show the cryptocurrency rallied sharply in the years following the previous halvings, which took place in 2012 and 2016. 

While halving may repeat history by rallying in 2021, the options market indicates a low probability of a big move higher this year. 

The market sees a 3 percent chance of bitcoin setting a new high above $20,000 by the end of June. Meanwhile, the probability of a rise to fresh record highs by the end of September currently stands at 6 percent. 

In fact, the odds of the cryptocurrency refreshing market cycle tops (the high from the preceding bear market low) with a move above the June 2019 high of $13,880 by the end of June stands at merely 11 percent. 

Meanwhile, the probability for a September expiry above $14,000 is currently seen at 16 percent.

The probabilities are calculated with the help of Black-Scholes formula, which is based on key metrics like call options’ prices, the current price of bitcoin, strike prices of the options, the risk-free interest rate and the time to maturity of the options. 

Option market probabilities should come as no surprise to litecoin (LTC) investors, who saw the value of their holdings fall sharply following the reward halving, which took place on Aug. 5, 2019. 

On that day, the cryptocurrency was trading just above $100. However, by December, the price of single litecoin had dropped below $50. 

Its hash rate, or the computing power needed to validate transactions on the blockchain, also tanked by 70 percent in the five months to December, as reward halving and the subsequent drop in prices whitted away mining profitability. That forced small and inefficient miners to shut down operations or move on to mining other currencies. 

Historically, bitcoin has set new market cycle tops in the calendar year of halving, but ahead of the event, according to Rekt Capital. 

For instance, bitcoin’s bear market from the December 2013 high of $1,150, ran out of steam near $150 in January 2015. The cryptocurrency then rose to a high of $502 in November 2015, confirming a bullish reversal. 

Prices then fell back to $365 in February 2016 before hitting a new cycle top $778 in June – a month ahead of the reward halving, which took place in July 2016.

The high of $778 reached in June 2016 was the highest price from the bear market low of $150, but was well short of the record high (at the time) of $1,153, reached in December 2013.

Similar price behavior was seen in the months leading up to the 2012 reward halving. 

If the same thing were to happen again, the cryptocurrency would set a new cycle top above the June 2019 high of $13,880 in the next two months. The options market, however, indicates the history is unlikely to repeat itself.

Currently, the options market sees only 3 percent probability of bitcoin rising above $14,000 by the end of March. 

The probability of a move above $10,000 in March is also quite low at 21 percent.