Previously anti-crypto investors are increasingly turning to Bitcoin and its brethren as a hedge against fiat currency inflation concerns.
One example is Hungarian-born billionaire Thomas Peterffy who, in a Jan. 1 Bloomberg report, said that it would be prudent to have 2-3% of one’s portfolio in crypto assets just in case fiat “goes to hell”. He is reportedly worth $25 billion.
Peterffy’s firm, Interactive Brokers Group Inc., announced that it would be offering crypto trading to its clients in mid-2020 following increased demand for the asset class. The company currently offers Bitcoin, Ethereum, Litecoin, and Bitcoin Cash, but will be expanding that selection by another 5-10 coins this month.
Peterffy, who holds an undisclosed amount of crypto himself, said that it is possible that digital assets could reap “extraordinary returns” even if some could also go to zero according to Bloomberg. “I think it can go to zero, and I think it can go to a million dollars,” he added before stating “I have no idea.”
In early December, the billionaire predicted that Bitcoin could spike as high as $100,000 before markets begin to retreat.
Related:Tom Peterffy Believes Bitcoin Could Wreck Might Go to $100K Before Crashing
Bridgewater Associates founder Ray Dalio is another renowned billionaire that revealed his portfolio contained some Bitcoin and Ethereum last year. This revelation came just a few months after he questioned crypto’s properties as a store of value.
He has now changed that stance and views crypto asset investments as “alternative money” in a world where “cash is trash’’ with inflation eroding purchasing power.
In late December, Dalio commented that he was impressed at how crypto as lasted, before stating “Cash, which most investors think is the safest investment is, I think, the worst investment.”
Billionaire hedge fund manager Paul Tudor Jones also bought Bitcoin last year, labeling the move as a hedge against inflation.
Pandemic-induced stimulus packages have caused economic turmoil across the globe, the fallout from which could linger for decades. In the United States, inflation is at a 4 decade high of 6.8%. This has resulted in a surge in the Consumer Price Index (CPI) as the costs of daily goods continue to increase.
The billionaires are already seeing the danger signs with fiat currencies and central bank manipulation, and they are increasingly turning to crypto assets. The year 2022 could see more wealthy investors join their ranks if the trend continues.
We‘ve all heard stories of billion-dollar future contracts liquidations being the cause of 25% intraday price crashes in Bitcoin (BTC) and Ether (ETH) but the truth is, the industry has been plagued by 100x leverage instruments since BitMEX launched its perpetual futures contract in May 2016.
The derivatives industry goes far beyond these retail-driven instruments, as institutional clients, mutual funds, market makers and professional traders can benefit from using the instrument‘s hedging capabilities.
In April 2020, Renaissance Technologies, a $130 billion hedge fund, received the green light to invest in Bitcoin futures markets using instruments listed at the CME. These trading mammoths are nothing like retail crypto traders, instead they focus on arbitrage and non-directional risk exposure.
The short-term correlation to traditional markets could rise
As an asset class, cryptocurrencies are becoming a proxy for global macroeconomic risks, regardless of whether crypto investors like it or not. That is not exclusive to Bitcoin because most commodities instruments suffered from this correlation in 2021. Even if Bitcoin price decouples on a monthly basis, this short-term risk-on and risk-off strategy heavily impacts Bitcoin‘s price.
Bitcoin/USD on FTX (blue, right) vs. U.S. 10-year yield (orange, left). Source: TradingView
Notice how Bitcoin‘s price has been steadily correlated with the United States 10 year Treasury Bill. Whenever investors are demanding higher returns to hold these fixed income instruments, there are additional demands for crypto exposure.
Derivatives are essential in this case because most mutual funds cannot invest directly in cryptocurrencies, so using a regulated futures contract, such as the CME Bitcoin futures, provides them with access to the market.
Miners will use longer-term contracts as a hedge
Cryptocurrency traders fail to realize that a short-term price fluctuation is not meaningful to their investment, from a miners‘ perspective. As miners become more professional, their need to constantly sell those coins is significantly reduced. This is precisely why derivatives instruments were created in the first place.
For instance, a miner could sell a quarterly futures contract expiring in three months, effectively locking in the price for the period. Then, regardless of the price movements, the miner knows their returns beforehand from this moment on.
A similar outcome can be achieved by trading Bitcoin options contracts. For example, a miner can sell a $40,000 March 2022 call option, which will be enough to compensate if the BTC price drops to $43,000, or 16% below the current $51,100. In exchange, the miner‘s profits above the $43,000 threshold are cut by 42%, so the options instrument acts as insurance.
Bitcoin‘s use as collateral for traditional finance will expand
Fidelity Digital Assets and crypto borrowing and exchange platform Nexo recently announced a partnership that offers crypto lending services for institutional investors. The joint venture will allow Bitcoin-backed cash loans that can t be used in traditional finance markets.
That movement will likely ease the pressure of companies like Tesla and Block (previously Square) to keep adding Bitcoin to their balance sheets. Using it as collateral for their day-to-day operations vastly increases their exposure limits for this asset class.
At the same time, even companies that are not seeking directional exposure to Bitcoin and other cryptocurrencies might benefit from the industry‘s higher yields when compared to the traditional fixed income. Borrowing and lending are perfect use cases for institutional clients unwilling to have direct exposure to Bitcoin‘s volatility but, at the same time, seek higher returns on their assets.
Investors will use options markets to produce “fixed income”
Deribit derivatives exchange currently holds an 80% market share of the Bitcoin and Ether options markets. However, U.S. regulated options markets like the CME and FTX US Derivatives (previously LedgerX) will eventually gain traction.
Institutional traders dig these instruments because they offer the possibility to create semi “fixed income” strategies like covered calls, iron condors, bull call spread and others. In addition, by combining call (buy) and put (sell) options, traders can set an options trade with predefined max losses without the risk of being liquidated.
It‘s likely that central banks across the globe will worldwide keep interest rates near zero and below inflation levels. This means investors are forced to seek markets that offer higher returns, even if that means carrying some risk.
This is precisely why institutional investors will be entering crypto derivatives markets in 2022 and changing the industry as we currently know.
Reduced volatility is coming
As previously discussed, crypto derivatives are presently known for adding volatility whenever unexpected price swings happen. These forced liquidation orders reflect the futures instruments used for accessing excessive leverage, a situation typically caused by retail investors.
Yet, institutional investors will gain a broader representation in Bitcoin and Ether derivatives markets and, therefore, increase the bid and ask size for these instruments. Consequently, retail traders‘ $1 billion liquidations will have a smaller impact on the price.
In short, a growing number of professional players taking part in crypto derivatives will reduce the impact of extreme price fluctuations by absorbing that order flow. In time, this effect will be reflected in reduced volatility or, at least, avoid problems such as the March 2020 crash when BitMEX servers “went down” for 15 minutes.
The views and opinions expressed here are solely those of theauthorand 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 (BTC) may be down over 30% from its record high of $69,000, but it has emerged as one of the best-performing financial assets in 2021. BTC has bested the U.S. benchmark index, the S&P 500, and the gold.
Arcane Research noted in its new report that Bitcoin’s year-to-date (YTD) performance came out to be nearly 73%. In comparison, the S&P 500 index surged 28%, and gold dropped by 7% in the same period, which marks the third year that Bitcoin has outperformed.
Bitcoin vs. S&P 500 vs. Gold in 2021. Source: Arcane Research, TradingView
At the core of Bitcoin’s extremely bullish performance was higher inflation. The U.S. consumer price index (CPI) logged its largest 12-month increase in four decades this November.
“Most economists didn’t see the high inflation coming, as witnessed by the 1-year ahead consumer inflation expectations,” the Arcane report read, adding:
With its 73% gain in the highly inflationary 2021, Bitcoin has proven itself to be an excellent inflation hedge.
Inflation 2021: Actual CPI vs. Expected CPI. Source: BLS, New York Fed
Bitcoin holdings grew among institutional investment vehicles
Loose monetary policies and a sustained fear of higher inflation also prompted mainstream financial houses to launch crypto-enabled investment vehicles for their rich clients in 2021.
Arcane reported an inflow of 140,000 BTC (~$6.56 billion) across spot- and future-based Bitcoin exchange-traded funds (ETF) and physically-backed exchange-traded products (ETP) this year.
Bitcoin exchange-traded fund holdings. Source: ByteTree, Arcane Research
That prompted more Bitcoin units to get absorbed into investment vehicles, underscoring a greater institutional demand for the cryptocurrency.
In contrast, gold-backed ETFs witnessed an outflow of $8.8 billion in 2021, according to World Gold Council’s report published this December.
Global gold-backed ETF flows. Source: World Gold Council
Volatility behind superior performance?
Nonetheless, Bitcoin’s relatively superior performance in 2021 has included periods of high volatility.
Many analysts believe that extreme price fluctuations keep Bitcoin from becoming an ideal inflation hedge. That includes Leonard Kostovetsky, a finance professor at Boston College, who recalled in his blog post that there had been 13 days in 2021 on which the BTC price has moved over 10% in one direction. Excerpts:
“It seems strange to think that a person who is worried about holding dollars because they lost 7% of their value over the last year would be comfortable holding Bitcoin which could (and often does) lose that much value in a single day.”
Arcane too recognized Bitcoin for being more volatile than the S&P 500 in 2021, noting that the cryptocurrency “behaved like a risk-on asset” by merely amplifying the most significant stock market movements.
The researcher cited VIX — a measure of the expectation of volatility based on S&P 500 index options — to exemplify the relationship between Bitcoin and stock markets. It noted that the BTC price fell hard whenever the VIX readings spiked in recent times, underscoring that institutional traders viewed Bitcoin as a risk-on asset.
Bitcoin vs. VIX. Source: Arcane Research, TradingView
As a result, Bitcoin’s potential to fall harder in the wake of a stock market correction also became higher. Arcane too noted that a bearish 2022 for the S&P 500 may end up wiping a big portion of Bitcoin’s gains.
“Therefore, be aware of stock market headwinds in the next year and their possible implications for bitcoin’s short-term price trajectory,” it added.
Related: Arcane Research releases its crypto predictions for 2022
But hedge fund manager Chris Brown went far in predicting an all-and-all Bitcoin doom in 2022. The Aristides Capital’s managing member stated that cryptocurrencies could face massive selloffs ahead as the U.S. Federal Reserve ends its $120 billion a month asset purchasing program followed by three rate hikes next year.
BTC/USD weekly price chart versus Federal Reserve balance sheet. Source: TradingView
“If the Fed really does hike rates enough to make money considerably less loose, or if markets believe they will, you are going to see certain areas of speculation come to a screeching halt,” Brown said, adding:
The prime example of such asset speculation is cryptocurrency; here lies $2.64 trillion of ‘wealth’ that is backed by nothing and generates no cash flows.
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.
Bitcoin ended the month of November down 7% but hedge funds with a more diverse portfolio of cryptocurrencies only dropped 2% for the period according to the Eurekahedge Crypto-Currency Hedge Fund Index.
According to Bloomberg, the outperformance may suggest that altcoins could offer investors better returns than Bitcoin which has currently fallen 29% from its all-time high.
The analysts used Ethereum as an example and stated that Bitcoin’s year-to-date performance could not compete with the former.
Bitcoin vs Altcoins
At the time of writing, Bitcoin had gained 69% since its January 1 price of around $29K. Comparatively, Ethereum is up 445% since New Year’s day when it traded around $740.
A comparison can also be made with the total market capitalization of all crypto assets which has also outperformed Bitcoin this year with a gain of just over 200%. Bloomberg stated that the same was true for crypto hedge funds:
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“Similarly, the data bears out the same theme for crypto hedge funds. The Eurekahedge Crypto-Currency Hedge Fund index – made of 18 equal weighted members – is up 170% the year ended November.”
The Eurekahedge fund performed even better in 2020 with a 200% gain. However, Bitcoin was king in 2020 with a gain of around 300% over the course of the year.
These gains are tiny compared with some of the other altcoins which have literally gone ballistic in 2021. Solana’s SOL token has surged a whopping 11,544% since the beginning of the year making it the fifth-largest cryptocurrency by market cap.
Terra’s LUNA token is up 9,438% so far this year, Avalanche’s AVAX has pumped 3,171%, while Polygon’s MATIC has made a monumental 11,819% since January 1.
Crypto Market Outlook
Crypto markets are currently bouncing back a little following a fortnight of losses. The total market cap is up 3.6% on the day to $2.37 trillion according to CoinGecko.
Bitcoin hit an intraday high of $49,421 following the FED’s decision to speed up the tapering of asset purchases. BTC has started to consolidate around the $48K zone just above support at the 200-day moving average.
Ethereum has reclaimed $4,000 following a gain of 4.7% over the past 24 hours. Other solid performers include SOL with a 10% push to reach $177, and AVAX increasing 17% to trade at $105.
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For traders who are undecided on Bitcoin’s (BTC) move, the “long condor with call options” yields optimal results with very low risk. This strategy offers protection down to $53,500, which would be a 7% downside move from the current $57,600, and returns a positive outcome up to $67,500.
Options markets provide more flexibility to develop custom strategies. Unlike futures, there are two separate instruments available. The call option gives the buyer upside price protection, while the protective put option offers the opposite.
Bitcoin options strategy returns. Source: Deribit Position Builder
This long condor strategy has been set for the Dec. 31 expiry and uses a slightly bullish range. The same basic structure can also be applied for other periods or price ranges, although the contract quantities might need some adjustment.
Bitcoin was trading at $57,600 when the pricing took place, but a similar result can be achieved starting from any price level. The minimum contract size depends on the derivatives exchange, but one needs to keep the suggested ratio to hold the overall strategy structure.
The first trade requires buying 0.54 contracts of the $52,000 call options to create positive exposure above this price level. Then, to limit gains above $56,000, the trader needs to sell 0.50 BTC call option contracts.
To further limit gains above $64,000, another 0.45 call option contracts should be sold. To complete the strategy, the trader needs upside protection above $70,000 by buying 0.41 call option contracts if the Bitcoin price skyrockets.
Related:3 reasons why Bitcoin’s drop to $56.5K may have been the local bottom
The 1.50 to 1 risk-reward ratio is moderately bullish
The strategy might sound complicated to execute, but the margin required is only 0.0152 BTC, which is also the max loss. Traders should remember that it is also possible to close the position ahead of the Dec. 31 expiry if there’s enough liquidity.
The max net gain occurs between $56,000 and $64,000 at 0.0233 BTC, which is 50% higher than the potential loss. With 30 days until the expiry date, this strategy gives the holder peace of mind because unlike futures trading, there is no liquidation risk.
Furthermore, having a profit range that varies from a 7% downside move to a positive 17% price change seems conservative and covers a decent $14,000 price range.
The views and opinions expressed here are solely those of theauthorand 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.
Investors tend to define the market as either bullish or bearish, but sometimes the price can remain within a specific range for an extended period.
This type of sideways movement is not necessarily stable because cryptocurrency markets have high volatility that stems from a range of uncertainties and the early adoption cycle.
For example, investors who concluded that the Bitcoin (BTC) bull run was over after the first week of 2021 probably regret that decision.
Bitcoin price at Coinbase in USD, Jan. 2021. Source: TradingView
Starting on Jan. 8, Bitcoin price traded in a descending channel within a $10,000 range. The movement lasted for 26 days until it finally broke out in early February.
Bitcoin price at Coinbase in USD, Aug. 2020. Source: TradingView
In August and September 2020, Bitcoin had two distinct ranging periods. However, it is not possible to consider those movements as a bull market. On the other hand, bears had few reasons to celebrate since the $10,000 bottom was tested multiple times, but the market recovered from it.
Is Bitcoin price in an ascending channel?
Although it seems premature to call it, there is a possibility that Bitcoin has entered a positive range aiming for $40,000 by the end of June.
Bitcoin price at Coinbase in USD, current. Source: TradingView
The present range indicates a $37,000 to $43,000 range for June 25, but with crypto’s extreme volatility, the channel’s support and resistance levels are sometimes drastically tested.
There is reason to believe that an impending short-squeeze could quickly recover a $50,000 support for Bitcoin, considering the $500 million raised by MicroStrategy and Paul Tudor Jones’s intention to increase his BTC position.
On the other hand, there are also fears that U.S. Treasury Secretary Janet Yellen’s remarks about digital assets being used for money laundering and illicit payments standing as a threat to Bitcoin price. Furthermore, Gary Gensler, the U.S. Securities and Exchange Commission chair, recently expressed concerns about the absence of regulation on crypto exchanges.
Smart traders take less risk on range trading moves
For options traders, the best option sometimes is to bet on maintaining the current range, especially for short-term periods. That’s where the Christmas tree spread with puts strategy enters into play.
Deribit position builder profit & loss simulator. Source: Deribit
Instead of betting on a bull or bear market, this option strategy uses protective put options to benefit traders with a neutral stance. The investor will profit if Bitcoin remains between $37,170 and $44,000 on June 25. Therefore, it offers protection both from an 8.5% move in either direction.
To achieve this, one needs to buy 2 BTC worth of the $36,000 put, sell 3.33 BTC worth of the $40,000 put in addition to buying 1.33 BTC of the $46,000 put. Each contract is maturing on June 25.
The Christmas tree spread with puts is a low-risk strategy
With less than 11 days left before the June 25 expiry, it is reasonable to assume that there is a good probability that the market stays within this range. However, this strategy offers a 0.062 BTC ($2,515 at $40,570) maximum loss in case of a surprise move.
Profit-wise, the strategy can yield a 0.1375 BTC ($5,500) gain at $40,000.
Therefore, it seems like a smart choice for an investor that expects the current uptick in bullish momentum to continue. It is worth noting that most derivative exchanges offer options trading from as little as 0.10 BTC.
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.
Jeff Currie, global head of commodities research at Goldman Sachs, recently said that cryptocurrencies are an alternative to copper but not gold.
In an interview with CNBC, Currie stated that investors should not see cryptocurrencies as a substitute for gold when considering inflation hedges. Based on his views, he said that crypto does not fit the narrative of “digital gold”, saying that cryptocurrencies are more like digital copper instead.
Currie explained that although both gold and cryptocurrencies are something of a hedge against inflation, the risks that come with crypto assets imply that their value is quite different from those of safe-haven assets such as gold.
The economist argued that cryptocurrencies are not a substitute for gold, stating that cryptos would substitute for copper instead as they are pro-risk.
According to Currie, Bitcoin is correlated to the business cycle since it links to an underlying payment structure. Due to that reason, Bitcoin is a better substitute for a “risk-on inflation hedge.”
Currie said that such types of inflation hedges, including copper hedge against good inflation, resulting from increased demand. On the other hand, he stated that gold hedges against “bad inflation, which results from a change in supply.
“There is good inflation, and there is bad inflation. Good inflation is when demand pulls it, and that is what bitcoin hedges, that is what copper hedges, that is what oil hedges,” Currie stated.
“Gold hedges bad inflation, where supply is being curtailed, which is … focused on the shortages on chips, commodities and other types of input raw materials. And you would want to use gold as that hedge,” Currie further explained.
Cryptocurrency Not Replacing Gold
With global debt on the rise, it appears that companies and individuals are looking for ways to preserve wealth by hedging against inflation. Since the beginning of this year, corporations and individuals began to hedge their bets against the increasing inflation threat.
In February, Tesla carmaker announced that it purchased more than $1 billion worth of Bitcoin as part of its balance sheet. In April, the car company’s bets appeared to have paid off after Elon Musk announced that Tesla sold 10% of its Bitcoin holdings, and it made a profit of more than $100 million.
Musk stated that Tesla sold 10% of its BTC holdings to show that the liquidity of Bitcoin is an alternative to holding cash on the balance sheet.
Many companies have been paying attention, and many are buying Bitcoin as part of their treasury reserve. More and more firms see crypto assets as essential tools in the global economy.
Cryptocurrencies continue to prove themselves as important forms of payment. They may not necessarily replace gold as an inflation hedge or safe-heaven, but they are making their mark as a global exchange means.
Jeff Currie, the global head of commodities research at Goldman Sachs, has dismissed comparisons between Bitcoin and gold as an inflation hedge, and described BTC as more akin to a “risk-on” asset like copper.
Speaking on CNBC’s Squawk Box Europe on June 1, Currie noted that copper and Bitcoin both work as “risk-on assets” for hedging due to their volatility while describing gold as a more stable “risk-off” hedge”:
“Digital currencies are not substitutes for gold. If anything, they would be a substitute for copper, they are pro-risk, risk-on assets. They are a substitute for risk on inflation hedges not risk-off inflation hedges”
“You look at the correlation between Bitcoin and copper, or a measure of risk appetite and Bitcoin, and we’ve got 10 years of trading history on Bitcoin — it is definitely a risk-on asset,” he added.
Currie’s comments come after the recent crypto downturn, which has seen Bitcoin’s price fall 36.8% in a few weeks according to CoinGecko, declining from around $57,000 on May 12 to roughly $36,000 today.
Ethereum has also taken a similar hit, dipping 39.58%, moving from around $4,300 on May 12 to around $2,598.
Copper has seen a lot of volatility in 2021. On Jan. 3 it was priced at $3.56 and rose to 4.30 by Feb. 24. The price then fluctuated between $3.50 to $4.00 from March until it broke out to $4.80 on May 10. The price now sits at $4.65.
Currie noted that “there is good inflation and there is bad inflation,” which different assets hedge against, and explained that, “Good inflation is when demand pulls it” and he said Bitcoin, copper and oil are hedges against this type of inflation. However:
“Gold hedges bad inflation, where supply is being curtailed, which is … focused on the shortages on chips, commodities, and other types of input raw materials. And you would want to use gold as that hedge.”
The Goldman Sachs boss previously argued in an April note that Bitcoin cannot yet be seen as digital gold, as its “vulnerable to losing store-of-value demand to another, better-designed cryptocurrency,” adding that: “We think it is too early for Bitcoin to compete with gold for safe-haven demand and the two can coexist.”
According to TradingView, since April 1 gold has been on an upward trend, increasing from $1686 up to $1900 as of today.
In a note from Monday, Currie stated that he believes commodities with real-world use are the best hedge against inflation because they ultimately rely on demand, and not growth rates:
“Commodities are spot assets that do not depend on forward growth rates but on the level of demand relative to the level of supply today.”
“As a result, they hedge short-term unanticipated inflation, created when the level of aggregate demand is exceeding supply in the late stages of the business cycle,” the note added.
Crypto traders are drawn to the market by its bombastic growth and lucrative opportunities to make a profit. However, not every investor is seeking volatility or using degenerate leverage levels to gamble at derivatives exchanges.
In fact, stablecoins usually comprise half of the total value locked (TVL) on most decentralized finance (DeFi) applications that focus on yields.
There’s a reason why DeFi boomed despite Ethereum network median fees surpassing $10 in May. Institutional investors are desperately seeking fixed income returns as traditional finance seldomly offers yields above 5%. However, it is possible to earn up to 4% per month using Bitcoin (BTC) derivatives on low-risk trades.
Non-investment grade bonds yield. Source: U.S. Federal Reserve
Notice how even non-investment grade bonds, far riskier than Treasury Bills, yield below 5%. Meanwhile, the official inflation rate in the United States for the past 12 months has stood at 4.2%.
Paul Cappelli, a portfolio manager at Galaxy Fund Management, recently told Cointelegraph that Bitcoin’s “inelastic supply curve and deflationary issuance schedule” make it a “compelling hedge against inflation and poor monetary policies that could lead to cash positions becoming devalued over time.”
Centralized services such as Crypto.com, BlockFi, and Nexo will typically yield 5% to 10% per year for stablecoin deposits. To increase the payout, one needs to seek higher risks, which does not necessarily mean a less known exchange or intermediary.
Stablecoin yields on centralized services. Source: loanscan.io
However, one can achieve a 2% weekly yield using Bitcoin derivatives. For those instruments, liquidity currently sits at centralized exchanges. Therefore the trader needs to factor in counterparty risk when analyzing such trades.
Selling a covered call can become a semi-fixed income trade
The buyer of a call option can acquire Bitcoin for a fixed price on a set future date. For this privilege, one pays upfront for the call option seller. While the buyer typically uses this instrument as insurance, sellers are usually aiming for semi-fixed income trades.
Each contract has a set expiry date and strike price, so potential gains and losses can be calculated beforehand. This covered call strategy consists of holding Bitcoin and selling call options, preferably 15% to 20% above the current market price.
It would be unfair to call it a fixed income trade as this strategy aims to increase the trader’s Bitcoin balance, but it doesn’t protect from negative price swings for those measuring returns in USD terms.
For a holder, this strategy does not add risk as the Bitcoin position will remain unchanged even if the price drops.
Bitcoin June 4 call options markets. Source: Deribit
Considering that Bitcoin was trading $37,000 when the above data was gathered, a trader could sell the $44,000 call option for June 4, maturing in six days. Depositing a 0.10 BTC margin should be enough to sell 0.30 BTC call option contracts, thereby receiving 0.00243 BTC in advance.
Two outcomes: higher Bitcoin quantity or larger USD position
There are essentially two outcomes, depending on whether Bitcoin trades above or below $44,000 at 8:00 am UTC on June 4. The $44,000 call option will become worthless for any level below this figure, so the option seller keeps the 0.00243 BTC advance payment in addition to the 0.10 BTC margin deposit.
However, if the expiry price is higher than $44,000, then the trader’s margin will be used to cover the price difference. At $46,000, the net loss is 0.011 Bitcoin, therefore reducing the margin to 0.089 ($4.094). Meanwhile, at the time of the deposit, the 0.10 Bitcoin margin was worth $3,700.
Indeed the covered call option seller would have made more money by holding the 0.10 Bitcoin from the beginning, as the price increased from $37,000 to $46,000. Nevertheless, by receiving the 0.00243 BTC advanced payment, one will increase the Bitcoin holdings even if the price moves below $37,000.
That 2.4% profit in Bitcoin terms will happen for any expiry below $44,000, which is 18.9% higher than the $37,000 when Deribit option prices were analyzed.
The views and opinions expressed here are solely those of theauthorand 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.
Former crypto skeptic Carl Icahn, the founder of Icahn Enterprises, told Bloomberg he’s set to enter the crypto market in a “big way” — teasing an investment of around $1.5 billion.
Icahn is an investor and former advisor to the Trump administration who has a net worth of $15.6 billion according to Forbes. In 2018 Icahn told CNBC that crypto is “ridiculous” and added “maybe I’m too old for them, but I wouldn’t touch that stuff.”
But speaking on May 26, Icahn explained he’s now considering a large investment and that entering the market in such a manner would “not be to buy a few coins or something”:
“I mean, a big way for us would be a billion dollars, billion-and-a-half dollars … I’m not going to say exactly.”
Icahn joins a growing list of fellow billionaires who have changed their tune over crypto in the past 12 months. When asked about what cryptocurrencies he has his eyes on, the billionaire kept his cards close to his chest and emphasized that:
“Much of the cryptocurrency issued today will not survive, but we believe cryptocurrency in one form or another might be here to stay. To be clear, we have never bought any cryptocurrency, but we are studying it.”
Icahn believes that cryptocurrencies that don’t at least serve as a store of value will be flushed out of the market as “there’s gotta be some form of safety of value there” to survive.
Icahn Enterprises is a $14.5 billion American conglomerate with investments in CVR, Pep Boys, and Trump Entertainment Resorts.
Maybe @Carl_C_Icahn will be the first #Bitcoin Terachad https://t.co/y8jjT0xTPh
— Michael Saylor (@michael_saylor) May 26, 2021
Ryan Adams, Ether proponent and founder of crypto investment firm Mythos Capital and Bankless, speculated on Twitter that Icahn’s recent kite flying in the media, may indicate he has already entered the market:
“If Carl Icahn hasn’t already bought a billion dollars worth of ETH and BTC why would he announce he’s about to buy a billion dollars worth of ETH and BTC.”
The billionaire expanded further on his views about crypto to Bloomberg, saying he now thinks that skepticism over the value of crypto is a “little wrong-headed,” as he questions the intrinsic value of the U.S. dollar in comparison to crypto, which could be a store of value and hedge against inflation.
Well, what’s the value of a dollar? The only value of the dollar really, is because you can use it to pay taxes.”
When Ichan was asked “what is your use case?” for crypto, the 85-year-old spoke about the Ethereum network, noting that “with Ethereum it’s the underlying blockchain. So, Ethereum has two things: you can use it as a payment system, you can use it as a store of value.
“Bitcoin to me is just a store of value,” he added.
