A curious market anomaly in the world of cryptocurrencies is currently raising eyebrows, with Matrixport insisting that the uncharacteristically low volatility in bitcoin could herald a shift in optimal investment strategy. Markus Thielen, head of research and strategy at the crypto service provider, asserted that the sedate crypto market could usher investors into a round of strategy reassessment.
This current scenario, somewhat of a departure from the usual high-octane, high-stakes world of crypto, presents an opportunity for traders to consider a transition from bitcoin to bitcoin options, primarily bullish call options. This is spurred by the noticeable dip in volatility triggering cheaper options prices, enticing traders to adjust their investment portfolios.
Bitcoin investors can lock in this year’s remarkable gain of nearly 77%, while maintaining the possibility of participating in an auspicious upswing, courtesy of call option exposure. The latter part of 2022 saw a unique bullish sentiment around bitcoin, a sentiment that has seemingly petered out with bitcoin’s recent rally stalling above the $30,000 mark.
However, it’s not all gloom on the financial front. Notably, a positive correlation between implied volatility and bitcoin’s price has emerged this year which implies promising prospects for call options holders in case the bitcoin rally reboots. They could potentially reap outsized gains from a relatively smaller initial investment.
Thielen’s counsel involves utilising the lucrative YTD gain of 77% and purchasing an at-the-money (ATM) call option of 3% notional value each month, using the freed-up capital. Even in a market downswing, the end of the year could still see investors secure a net gain of 62%.
Despite the seemingly appealing prospects presented by this strategy, it’s important to remember the other side of the coin. Buying a call does involve the call buyer paying a premium to the seller for cordoning off bullish moves. In the event of a market downswing, this premium constitutes the maximum amount the call buyer risks losing. Hence, even though the “Bitcoin replacement strategy” might potentially offer a safety net against the market’s inherent volatility, it’s not entirely devoid of pitfalls.
Ultimately, this shift from bitcoin to bitcoin options does present a noteworthy change in the crypto investment landscape, fuelled by the ongoing lull in volatility in the crypto markets. Whether this will instigate a broader change in strategy among bitcoin traders and how fruitful that transition will be, remains to be seen.
Source: Coindesk
