Afraid to buy the dip? Bitcoin options provide a safer way to ‘go long’ from $38K

Crypto Pakistan Post

BTC price continues to trade in a wide range, providing an opportunity for options traders to use the Iron Condor strategy.

The last time Bitcoin (BTC) traded above $50,000 was Dec. 27, 2021. Since then, four months have passed, but traders seem somewhat optimistic that inflation has hit the necessary threshold to trigger cryptocurrency adoption.

In theory, the 8.5% inflation in the United States means that every five years, the prices increase by 50%. This essentially turns $100 into $66 by slashing 33% of the dollar’s purchasing power.

The U.S. Federal Reserve FOMC meeting is expected to rule on the interest rates on May 4, but more importantly, the FED is expected to announce a program to offload part of its $9 trillion balance sheet. Thus, instead of supporting debt and mortgage markets, the U.S. Central Bank will likely sell $95 billion worth of these assets every month.

The consequences could be severe and risk markets have priced in such a scenario. For instance, the Rusell 2000 mid-capitalization stock market index is down 16.5% year-to-date in 2022. Similarly, as measured by the MSCI China index, the Chinese stock market is currently facing a 20% correction year-to-date.

There is no way to know what will trigger a Bitcoin bull run, but a report by Glassnode on April 18 has detected “a large amount of coin supply” accumulating between $38,000 and $45,000. For traders who believe BTC will reach $50,000 by July, there is a low-risk options strategy that can be used to cast a long bullish bet.

The skewed ‘iron condor’ has a limited downside

Following the whales and large investors usually pays off, but most traders are looking for ways to maximize gains while also limiting losses. For example, the skewed “iron condor” maximizes profits near $50,000 by July by limiting losses below $38,000.

Bitcoin options Iron condor skewed strategy returns. Source: Deribit Position Builder

The call option gives the buyer the right to acquire an asset at a fixed price in the future and the buyer pays an upfront fee known as a premium for this privilege.

On the other hand, the put option provides its buyer the privilege to sell an asset at a fixed price in the future — a downside protection strategy. Meanwhile, selling this instrument offers exposure to the price upside.

The iron condor consists in selling both the call and put options at the same expiry price and date. The above example has been set using the BTC July 29 options.

The profit area lies between $40,500 and $60,500

To initiate the trade, the investor needs to short 1 contract of the $44,000 call option and another 1.4 contracts of the $44,000 put option. Then, the buyer needs to repeat the procedure for the $50,000 options, using the same expiry month.

To protect from an eventual downside, one should buy 3.46 contracts of the $38,000 put option. Lastly, one should buy 1.3 contracts of the $70,000 call option to limit losses above the level.

This strategy yields a net gain if Bitcoin trades between $40,500, 4% above the current $38,900 price, and $60,500 on July 29. Net profits peak at 0.33 BTC at $50,000, but remain above 0.21 BTC between $43,200 and $53,400.

Meanwhile, the maximum loss is 0.21 BTC in either extreme if on July 29 Bitcoin price trades below $38,000 or above $70,000, both of which seem rather unlikely.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Bitcoin whale holdings at 7-month highs despite warnings of BTC price crash to $20K

Crypto Pakistan Post

Bitcoin’s correlation with stocks has risen to alarming levels, according to some market analysts.

Bitcoin (BTC) prices could drop by 20% in the next few months, but that has not deterred its richest investors from stacking.

The amount of Bitcoin held by “unique entities” with a balance of at least 1,000 BTC, or so-called “whales,” has increased to its best levels since September 2021, data on Glassnode shows.

Interestingly, the number in the past week grew despite Bitcoin’s price decline from $43,000 to around $38,000.

Bitcoin whales holdings. Source: Glassnode

Marcus Sotiriou, an analyst at GlobalBlock, a U.K.-based digital asset broker, considered the latest spike in Bitcoin whale holdings as a bullish indicator, recalling a similar move in September 2021 that preceded a BTC price rally to $69,000 all-time highs in November 2021.

“As whales have a substantial impact on the market, this metric is an important one to take note of,” he said.

Bitcoin risks further declines

Bitcoin’s price has fallen from $69,000 in November last year to almost $40,000 in late April 2022, driven lower primarily due to Federal Reserve’s decision to aggressively hike interest rates and unwind its quantitative easing program to tame inflation.

Interestingly, Bitcoin’s fall has mirrored similar downside moves in the U.S. equity market, with its correlation with the tech-heavy Nasdaq Composite reaching 0.99 in mid-April. An efficiency reading of 1 shows that the two assets have been moving in perfect tandem. 

BTC/USD correlation with Nasdaq 100. Source: TradingView

“You should think about this high correlation as a gravitational field pulling on Bitcoin’s price,” says Nick, analyst at data resource Ecoinometrics. He adds:

“If the Fed nukes the stock market into a blackhole don’t expect Bitcoin to escape a major crash.”

Technicals agree with depressive fundamental indicators. Notably, Bitcoin has been breaking down from a “bear flag” pattern, risks undergoing further price declines in the coming months, as illustrated in the chart below.

BTC/USD daily price chart featuring ‘bear flag’ setup. Source: TradingView

The bear flag’s downside target sits below $33,000.

Meanwhile, Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, says that a break below $30,000 would open the door for a crash to as low as $20,000.

All eyes on the Fed

Sotiriou remains long-term bullish on Bitcoin, noting that the contraction in the U.S. gross domestic product (GDP) by 1.4% in Q1/2022 may prompt the Fed to become less hawkish to avoid a recession.

“As long as we see these macro headwinds persist I think the correlation to the Nasdaq will continue,” the analyst told Cointelegraph.

“However, the longer this consolidation continues, the bigger the expansion will be when the Fed reverses course from hawkish to dovish.”

Bitcoin’s “asymmetric returns” potential 

Meanwhile, Nick believes that Bitcoin will recover faster than U.S. equities after the next large market drop.

Related: BTC and ETH will break all-time highs in 2022 — Celsius CEO

The analyst explained by pitting the size and duration of BTC’s drawdowns — a correction period between two consecutive all-time highs — against tech stocks, including Netflix, Meta, Apple, and others.

Notably, Bitcoin recovered faster every time than the given U.S. equities.

Bitcoin versus Netflix drawdown size and duration. Source: Ecoinometrics

Excerpts:

“Bitcoin doesn’t look much different than your typical stock investment. So don’t worry too much about volatility and focus instead on long-term growth potential. Those betting on asymmetric returns shall be rewarded in time.”

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.