Bloomberg analysts are awaiting BTC ETF approvals in the coming months, and smart options traders can use this strategy to take advantage of this opportunity.
Very few events can shake the cryptocurrency markets for a long time, which actually leads to a sharp movement in the prices of bitcoins and altcoins. One example is that Chinese President Xi Jinping in October 2019 called for the development of blockchain technology across the country.
The unexpected news triggered a 42% jump in bitcoin (BTC), but this move completely disappeared when investors realized that China was not changing its negative stance on cryptocurrencies. As a result, only a few tokens targeting the Chinese FinTech industry, blockchain tracking and industry automation have seen price consolidation at higher levels.
Some “cryptocurrency news” and legislative changes have a lasting impact on the perception and willingness of investors to interact with the cryptocurrency market. Not everyone is positive. Take, for example, the December 2017 launch of bitcoin futures by the Chicago Mercantile Exchange (CME), which experts say burst the bubble and led to a nearly three-year bear market. Despite this result, the bright spot was that institutional investors finally got a regulated tool to bet against cryptocurrencies.
Tesla’s announcement in February 2021 that it had invested $ 1.5 billion in bitcoin effectively changed the perception of reluctant institutional and institutional investors and reaffirmed the “ digital gold ” thesis. Although the price hit an all-time high of $ 65,000 and fell to $ 29,000, this helped establish the price support level.
Believe it or not, investors have been expecting the US Securities and Exchange Commission to approve the exchange-traded bitcoin futures instrument since July 2013, when the Winklevoss brothers applied to create their Bitcoin Trust.
The Grayscale Bitcoin Trust (GBTC) was finally able to list it on the OTC markets in March 2015, but there are many restrictions on these instruments that restrict investor access.
Potentially Positive Price Trigger Approaching
With this in mind, the actual approval of an ETF listed in the United States by the SEC is likely to be one of those events that will change the price of bitcoin forever. By expanding the pool of potential buyers to the underlying asset, the event could be the trigger that will push BTC towards becoming a multi-billion dollar asset.
On August 24, Bloomberg ETF analysts Eric Balchunas and James Seyffart issued a message to investors saying that SEC approval could be obtained as early as October. Even if futures contracts could be used to take advantage of their long positions, they would risk being liquidated if a sudden negative price movement occurred prior to approval.
Therefore, professional traders are more likely to choose an options trading strategy such as the Long Butterfly.
By trading multiple call (buy) options on the same expiration date, you can earn 3.5 times the potential loss. The long butterfly strategy allows the trader to profit from growth while limiting losses.
It is important to remember that all options have a fixed expiration date, and therefore an asset price increase must occur within a certain period.
Use ringer options to limit falling
Below are the expected returns using bitcoin options before the October 29th deadline, but this methodology can also be applied using other timeframes. Although cost varies, overall efficiency will not be affected.
Profit / Loss Estimation. Source: Deribit Position Builder
This call option gives the buyer the right to purchase the asset, but the seller of the contract receives negative (potential) exposure. The Long Butterfly strategy requires you to go short using a $ 70,000 call option.
To initiate exercise, the investor buys 1.5 Bitcoin call options with a strike price of $ 55,000, while simultaneously selling 2.3 contracts of the call for $ 70,000. To complete the trade, you need to buy 0.87 BTC call options for $ 90,000 to avoid losses above this level.
The price of derivatives contracts is denominated in bitcoins and the price of this strategy was $ 48,942.
Trading provides a limited decline with a possible win rate of 0.25 BTC
In this situation, any result from $ 57,600 (an increase of 17.7%) to $ 90,000 (an increase of 83.9%) is profitable. For example, a 30% price increase to $ 63,700 gives an increase of 0.135 BTC.
Meanwhile, the maximum loss is 0.07 BTC if the price falls below $ 55,000 on October 29. Thus, calling a “long butterfly” is a potential win 3.5 times the maximum loss.
In general, trading provides a better risk / reward ratio than leveraged futures trading, especially when you consider the limited drawbacks. This certainly looks like an attractive bet for those waiting for ETF approval in the next couple of months. The only prepayment required is 0.07 Bitcoin, which is enough to cover the maximum loss.