Possible Approval of Bitcoin Spot ETF on January 10th, What Investment Strategies Can be Implemented?
As the final “judgment” day for the Bitcoin spot ETF approaches on January 10th (Eastern Time), the sentiment in the cryptocurrency market continues to heat up. Last night and this morning, there have been several significant developments in the Bitcoin spot ETF, and BTC has once again experienced a significant increase.
Currently, there is less than 24 hours until the final result of the ETF is determined. Regardless of whether it goes up or down, it is widely believed that there will be significant volatility in the market. The 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? The potential operational methods are summarized as follows:
Leveraged trading is the easiest and most basic choice, which also offers the highest return rate (or loss rate). In the face of the upcoming market volatility, whether going long or going short, if the direction is correct, there is potential for high returns. However, leverage trading in the crypto market is a high-risk trading method, so caution is advised.
On January 7th, Vitalik Buterin, the founder of Ethereum, provided his investment advice on X platform: do not use leverage greater than two times. Absolutely not.
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During the market volatility yesterday, Coinglass data showed that the liquidation amount in the crypto market reached as high as 208 million USD in 24 hours. BTC liquidation exceeded 100 million USD. In the past 24 hours, a total of 60,036 people were liquidated, with the largest single liquidation amount worth 9.4389 million USD.
Although it is difficult to determine the specific direction of BTC after the ETF results are announced, the market consensus is that there will be significant volatility. Therefore, going long on BTC volatility is a good choice.
In the era of FTX, FTX has pioneered the easy option of volatility tokens for the market. Currently, FTX has collapsed, and there are no obvious competitive products in the market.
However, we still find several interesting options from the DeFi market:
CVI (Crypto Volatility Index) is a crypto volatility index, which is both the name of an index and the name of the DeFi project. The CVI index aims to track the volatility of the entire crypto market, with a higher index value indicating greater market volatility. We can use an approximate but inappropriate analogy to understand that this index is the IV (Implied Volatility) of the entire crypto market.
In simple terms, this project provides CVI tokens to users, which are pegged to the price of the CVI index and include built-in funding fees that adjust daily. If users predict that volatility will increase in the future, they can buy the tokens and sell them after the volatility increases. If users predict that volatility will decrease in the future, they can mint the tokens and collect funding fees during each adjustment.
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(Recent hourly trend of CVI index)
Volmex is another DeFi protocol that provides volatility trading for users. Volmex has also launched its own crypto volatility indices, namely BVIV (Bitcoin Volatility Index) and EVIV (Ethereum Volatility Index). Unlike CVI, which covers the entire crypto market, these two indices are more precise and specific, representing BTC implied volatility and ETH implied volatility, respectively.
On the Volmex platform, users can trade the indices and provide liquidity for the indices. They can also engage in BTC volatility and ETH volatility swap trading.
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(Recent hourly trend of Volmex volatility)
Volmex aims to provide users with a simple way to obtain cryptocurrency volatility, and based on this investment tool, users can develop a series of complex trading strategies.
Currently, mainstream CEXs, Deribit, and some DeFi protocols all provide options markets for cryptocurrency investors.
Buying options that expire on January 12th for bullish/bearish positions is the simplest way to trade options for going long/short on BTC.
However, it should be noted that unlike contracts on CEXs, options are settled forcibly after the expiration date. Therefore, if the price prediction is wrong, the option will be “worthless” (for example, if BTC price is $40,000 and a call option with a strike price of $50,000 is purchased, but the BTC price at that time is only $49,999, the option will result in a complete loss without any profit).
Users can also sell put options to profit by earning premiums. But it should be noted that the options seller takes on a higher level of risk, and theoretically, the options seller bears unlimited risk.
Options products are more complex, and it is recommended that investors who are not familiar with them should study them in depth before trading. Odaily has published a series of introductory guides on options.
Of course, if only simple “long/short” predictions are made, options tools may be overkill. The real value of options lies in hedging and combining with other positions (such as spot, contracts, options, etc.) to execute various strategies.
Constructing a straddle option is the simplest way to go long on volatility. For example, when BTC is at $40,000, simultaneously buy a call option and a put option with a strike price of $40,000. For investors, this requires only two premium costs, and once there is a significant increase/decrease and the price fluctuation is sufficient to cover the premium costs, profits can be made. The straddle combination is a simple way to go long on volatility. In theory, this is a combination strategy with limited losses (premium goes to zero) and unlimited returns (price fluctuation has no upper limit).
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(Profit and loss diagram of straddle option)
Of course, if the same operation is reversed – acting as an option seller – it is going short on volatility and can earn premium income due to stagnant market volatility.
Practical example:
Using the current market as an example, constructing the most basic straddle option combination may still have profit potential, but it seems not cost-effective.
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Taking BTC options expiring on January 12th as an example (current price $46,632), constructing a combination with BTC-46500-CALL and BTC-47000-PUT requires a premium cost of approximately $3,000. 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.
Taking the bull spread strategy as an example, it involves buying a lower-priced call option and selling a higher-priced call option with the same expiration date. For example, when BTC is priced at $40,000 and a future market increase is predicted, one can buy a call option with a strike price of $45,000 and sell a call option with a strike price of $50,000.
The profit potential of this strategy is limited to a certain price range, and it cannot achieve unlimited profit theoretically. In other words, profits can only be made when the BTC price stays between approximately $45,000 and $50,000. (This is an approximate value because the cost and profit of the premium need to be calculated)
Practical example:
Compared to “buying only one call option,” the advantage of this strategy is that it reduces the holding cost by acting as a seller. With a little flexibility, capital efficiency can be further improved.
Using the current market and BTC options expiring on January 12th as an example:
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If BTC-48000-CALL is bought and BTC-52000-CALL is sold, the cost is approximately $900 and an option premium of approximately $200 is received. The net cost of the strategy is approximately $700.
When the expiration date of January 12th arrives, profits can be made when the BTC price stays above approximately $48,700 and below $52,000. When the price exceeds $52,000, as we act as the options seller, the seller’s options start to incur losses. Therefore, further increase in price will offset the gains and losses of the two options at a 1:1 ratio, and unlimited profits cannot be achieved.
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Can we break the limit of maximum profit while improving capital efficiency?
The answer is yes, with a little flexibility. In the straddle strategy we constructed just now, because of the “buy 1, sell 1” operation, the Delta value of the investment portfolio is approximately 0 (not equal to 0). As long as we allow Delta to have a greater deviation towards the positive side, the maximum profit limit can be broken, and a one-way bullish option strategy can be implemented.
We can use the same strategy but “buy 3, sell 2” or “buy 2, sell 1”. This way, the maximum profit limit can be broken, and a one-way bullish option strategy can be implemented.
The strategies mentioned above are just some simple and convenient strategies, but options trading carries significant risks. Odaily reminds users to assess risks by themselves and trade cautiously.
Options trading is mature in traditional markets, and investors can learn more about options by trading stock options.
In the face of upcoming high volatility, operating with crypto-related stocks is another way to bet on the crypto market.
Crypto-related stocks, represented by COIN, have been closely correlated with the overall cryptocurrency market. The stock market, as a more mature and easily accessible investment tool, provides more possibilities for betting on the crypto market. Whether going long, going short, or playing volatility, it is a good choice to find some crypto-related stocks as trading targets.
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(Comparison of COIN and BTC trends)
In addition to COIN, there are various other ways to operate, such as crypto mining companies, “alternative BTC leverage tokens” like MicroStrategy, and Grayscale’s GBTC shares.
Furthermore, if GBTC is approved, the price difference between GBTC and BTC also presents a potential arbitrage opportunity. Currently, GBTC’s premium is 6.82%.
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(Recent GBTC premium rate changes)
Besides trading cryptocurrencies, what other services can CEXs provide? Robot products and wealth management products are also good choices.
In the midst of market fluctuations, grid trading strategies are highly effective.
Grid trading is a method of profiting from price oscillations in a market. In a market where the price of the underlying asset keeps oscillating, the grid strategy automatically buys/sells whenever the market price touches the pre-set grid line price to earn profits.
Taking OKX as an example, the grid strategy launched by OKX, which is ranked high and officially recommended, has achieved good returns in previous oscillating markets.
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Wealth management products are also a good choice.
Recently, market sentiment has been consistently strong and positive. In this situation, investors have a strong desire for leveraged positions, and there has been a high demand for lending in various lending products. As a result, loan interest rates have remained high.
Correspondingly, lenders can “earn while sleeping” with high yields.
Using OKX as an example again, the annualized yield for stablecoin wealth management on OKX is 8%. In the past 30 days, this number has skyrocketed to 58% and has remained above 20% for a long time in the strong market sentiment. In such a lively market sentiment, stablecoin wealth management on various CEXs is a relatively low-risk and good choice.
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(OKX USDT wealth management yield trend)
Of course, lending demand in the on-chain market is also strong. Taking Aave as an example, the average APR for USDC in the past month has exceeded 8% in the Polygon market and Optimism market.
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(Aave Optimism USDC interest)
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(Aave Polygon USDC interest)
Currently, the only factor affecting the approval of the Bitcoin spot ETF is the stance of the SEC commissioners (including Gary Gensler) who have voting rights, and the outcome of the vote. No one can know the final result of the ETF, and this event is almost impossible to predict.
For investors, being aware of risks and paying attention to positions is still the best choice.
The current market still has divergent predictions on the success or failure of the ETF. How the final result will turn out will be revealed within the next 24 hours.
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