Possible approval of Bitcoin spot ETF on January 10th Eastern Time, what investment strategies can be used for this event? The following will provide suitable investment strategies for you.
Table of Contents:
Be cautious with leverage
Longing volatility
Crypto Volatility Index (CVI)
Volmex
Options trading
How to long volatility with options?
One-way bullish/bearish: Spread strategy
Stock trading
CEX products
What should I do with ETF approaching?
As the final “judgment” day for Bitcoin spot ETF approaches on January 10th (Eastern Time), the sentiment in the cryptocurrency market continues to heat up. Last night and this morning, Bitcoin spot ETF saw several significant developments. BTC also experienced a substantial increase again.
Currently, there is less than 24 hours until the final result of the ETF is obtained. When the ETF is approved, regardless of the price movement, the market consensus is that there will be significant volatility. Bitcoin spot ETF is just one step away.
In the face of significant volatility, how should retail investors operate? How can they profit from the potential significant volatility ahead? The potential operating methods are summarized as follows:
Contract and leverage trading is the easiest to operate, the most basic, and offers the highest return rate (or loss rate) option. In the face of upcoming market volatility, whether going long or short, there is potential for high returns if the direction is correct. However, using leverage in the cryptocurrency market is a highly risky trading method, so please be cautious.
On January 7th, Vitalik Buterin posted on X platform, providing his investment advice: do not use leverage of more than 2x. Absolutely not.
In the market’s violent volatility yesterday, Coinglass data showed that the cryptocurrency market’s 24-hour liquidation volume reached as high as 208 million US dollars. BTC liquidation exceeded 100 million US dollars. In the past 24 hours, a total of 60,036 people were liquidated, with the largest single liquidation worth 9.4389 million US dollars.
Although it is difficult to determine the specific trend of BTC after the ETF result is announced, the market predicts that there will be significant volatility after the announcement. Therefore, longing BTC volatility is a good choice.
In the era of FTX, FTX has innovatively provided volatility tokens as a simple option for the market. Currently, FTX has collapsed, and there are no obvious superior competing products in the market.
However, we have discovered several interesting choices from the DeFi market:
CVI (Crypto Volatility Index) is an index that tracks the volatility of the entire cryptocurrency market. The higher the market volatility, the higher the index value. We can use an approximate but inappropriate analogy to understand—this index is the IV of the entire cryptocurrency market.
In simple terms, this project provides users with CVI tokens, whose price is linked to the CVI index and has built-in funding fees, which are adjusted daily.
If users predict that volatility will increase in the future, they can buy the tokens and sell them when the volatility increases. If users predict that volatility will decrease in the future, they can mint the tokens and collect funding fees in each adjustment.
Volmex is another DeFi protocol that provides volatility trading for users. Volmex has also launched its own crypto volatility index, namely BVIV index and EVIV index. Unlike CVI, which covers the entire cryptocurrency market, these two indices are more accurate and specific to tokens, representing BTC implied volatility and ETH implied volatility, respectively.
On the Volmex platform, users can trade the indices, provide liquidity for the indices, and also engage in BTC volatility and ETH volatility swap trades.
Volmex aims to provide users with a simple way to obtain cryptocurrency volatility, and based on this investment tool, users can formulate a series of complex trading strategies.
Currently, mainstream CEX, Deribit, and other centralized platforms, as well as some DeFi protocols, provide cryptocurrency options markets for investors.
Purchasing call/put options that expire on January 12th is the simplest way to trade BTC options and go long/short.
However, it should be noted that, unlike contracts on CEX, options will be forcibly settled after the delivery date is reached. Therefore, if the price prediction is incorrect, the options will be “zeroed out” (for example, when the BTC price is $40,000, buying a call option with a strike price of $50,000, if the BTC price at that time is only $49,999, the entire option premium will be lost, with no profit).
Additionally, users can also sell put options to profit from earning premium. But it should be noted that the option seller is a riskier role, and theoretically, the option seller bears unlimited risk.
Options products are more complex, and it is recommended that investors who are unfamiliar with them should trade after a deep understanding. Odaily Daily Planet has published a series of introductory guides to options.
Of course, if only simple “long/short” predictions are made, options tools may be overkill. Combining with other positions (such as spot, futures, options, etc.) and executing some strategies is where options excel.
Constructing a straddle option is the simplest way to long volatility. For example, when Bitcoin is at $40,000, simultaneously buying a call option and a put option with a strike price of $40,000. For investors, this only requires paying two option premiums, and once there is a significant increase/decrease and the magnitude of the increase/decrease is sufficient to cover the option premium cost, it can start to make a profit. The straddle combination is a simple way to long volatility. In theory, this is a combination strategy with limited losses (option premium is zeroed out) and unlimited gains (price volatility has no upper limit).
Of course, if the same operation is done in reverse—as an option seller—it is to short volatility and profit from the stagnant market volatility.
Practical example:
Using the current market as an example, constructing the most basic straddle option combination, although there is still a possibility of profit, it seems less cost-effective.
Using BTC with a strike price on January 12th (current price $46,632) as an example, constructing a combination with BTC-46,500-CALL and BTC-47,000-PUT, requires an option premium cost of about $3,000, and BTC needs to fluctuate to $49,932 or $43,362 to start making a profit.
If the user has a one-way directional prediction, a bull/bear spread strategy can be implemented.
Using the bull spread strategy as an example, it means buying a lower-priced call option and selling a higher-priced call option with the same expiration date. For example, when the BTC price is $40,000, if the future market is predicted to be bullish, one can buy a $45,000 call option and sell a $50,000 call option.
The profit space for this strategy is limited to a range, and it cannot achieve unlimited profit theoretically. That is, it can only make a profit when the BTC price stays between $45,000 and $50,000 (approximate value, as the cost and return of the option premium need to be calculated).
Practical example:
Compared with “only buying one call option,” the advantage of this strategy is that it reduces the holding cost by acting as a seller. With a little modification, capital efficiency can be further improved.
Using the current market and BTC with a strike price on January 12th as an example.
If one buys BTC-48,000-CALL and sells BTC-52,000-CALL, it requires an option premium cost of about $900 and receives an option premium of about $200, making the net cost of the strategy about $700.
When the expiration date of January 12th arrives, a profit can be made when the BTC price stays above approximately $48,700 and below $52,000. If the price reaches above $52,000, as we act as the option seller, the option seller will start to lose money. Therefore, further increase in price will balance the gains and losses of the two option contracts on a 1:1 basis, and unlimited profit from further increase cannot be realized.
Can we break the limit of maximum profit while improving capital efficiency?
The answer is yes, as long as some modifications are made. In the straddle strategy we constructed just now, because of the “buy one, sell one” operation, the Delta value of the investment portfolio is approximately 0 (not equal to 0). We just need to create a larger deviation in the Delta value towards the positive direction.
We can use the same strategy, but “buy three, sell two” or “buy two, sell one.” This way, the limit of maximum profit can be broken, and a one-way bullish option strategy can be realized.
The above strategies are only some simple and convenient strategies, but options trading carries significant risks. Odaily Daily Planet reminds users to assess risks on their own and trade cautiously.
Options trading is relatively mature in traditional markets, and investors can learn more about options through stock options trading.
In the high volatility coming up, operating with stocks related to cryptocurrencies is another channel to bet on the cryptocurrency market.
Cryptocurrency concept stocks represented by COIN have always been correlated with the cryptocurrency market. The stock market, which is more mature and easily accessible, provides more possibilities for us to bet on the cryptocurrency market. Whether you go long, go short, or trade volatility, finding some cryptocurrency-related stocks as targets for operation is a good choice.
In addition to COIN, there are various avenues available for operation, such as cryptocurrency mining companies, “alternative BTC leverage tokens” MicroStrategy, Grayscale GBTC shares, etc.
Furthermore, if GBTC is approved, the price difference between GBTC and BTC is also a potential arbitrage opportunity. Currently, GBTC has a negative premium of 6.82%.
In addition to trading coins, what other services can CEX provide? Robot products and wealth management products are also good options.
In the repeated volatility of the market, grid trading strategy is an extremely effective strategy.
The grid strategy is a method of making profits by utilizing market fluctuations. In a market where the price of the underlying asset keeps oscillating, the grid strategy will automatically buy/sell whenever the market price touches the pre-set grid line price to earn profits.
Taking OKX as an example, the officially launched grid strategy with default sorting and a high ranking has achieved good returns in previous oscillating markets.
Wealth management products are also a good choice.
Recently, the market sentiment has been consistently strong and positive. In such a situation, investors are enthusiastic about leveraged emotions, and there has been a large demand for loans in various lending products. As a result, loan interest rates remain high.
Correspondingly, the lending side enjoys high returns.
Taking OKX as an example again, the annualized return rate of stablecoin wealth management on OKX is 8%. In the past 30 days, this figure has soared to 58% at its highest and has remained above 20% for a long time. In a strong market sentiment, stablecoin wealth management on various CEX is a relatively low-risk and good choice.
Of course, there is also a strong demand for lending in the on-chain market. Taking Aave as an example, the average APR of USDC in the past month has exceeded 8% in the Polygon market and the Optimism market.
Currently, the only factor that affects whether the Bitcoin spot ETF is approved is the stance of the SEC commissioners (including Gary Gensler and four others) who have voting rights. No one can know the final result of the ETF, and this event is almost unpredictable.
For the majority of investors, paying attention to risks and being cautious with positions is still the best choice.
At present, the market’s prediction for the success or failure of the ETF still varies, and the final result will be revealed within 24 hours.