Bitcoin (BTC) entered an upward channel in early January and despite trading sideways around $40,000, order book analysts pointed to “significant buying pressure” and indicated that the overall negative sentiment could be heading towards exhaustion.
Bitcoin/USD price on FTX. Source: Trading View
Independent analyst Johal Miles noted that on the daily chart on January 24 and February 24, the price of BTC formed a bullish hammer light, indicating that the long-term downtrend is nearing its end.
However, the $41,000 rally on Feb. 28 failed to generate strong demand from traders in Asia, as evidenced by the lack of a premium for the Chinese peer-to-peer currency (USDT) against the US dollar’s official currency. .
There is currently positive news about the potential use of cryptocurrencies in eBay’s global e-commerce marketplace. On Feb. 27, CEO Jimmy Enon revealed that the tech giant wants to transition to new payment methods for a portion of the platform’s $85 billion annual direct trading volume.
Bitcoin bulls also have good reason for price surprises if the European Commission plans to isolate Russia from the international SWIFT network for cross-border payment systems.
In addition to isolating Russia from the SWIFT system, the European Commission “paralyzes the assets of the Russian central bank.” Intentionally or not, this demonstrates the benefits of decentralizing Bitcoin as an uncontrolled exchange and store of value.
Risk reversal strategy is in line with the current scenario
Despite the popular belief that futures and options are widely used for excessive gambling and influence, the instruments are actually designed for hedging (protection).
Options trading provides investors with the opportunity to take advantage of increased volatility or to protect themselves from sharp price drops, and complex investment strategies involving more than one instrument are known as option structures.
Traders can use the risk reversal option strategy to hedge losses from unexpected price fluctuations. The investor benefits from being long the call options, but pays for those options by selling the call options. This setup essentially eliminates risk by trading sideways, but carries significant risk if the asset is trading down.
Estimate profit and loss. Source: Deribit Position Builder
The above deal focuses solely on March 31 options, but investors will find similar models with different maturities. Bitcoin was trading at $41,767 when it was priced.
The trader must first buy fall protection by buying 2 BTC and placing (selling) $34,000 worth of option contracts. The trader will then sell 1.8 BTC and put (sell) $38,000 worth of options contracts with a net yield above that level. Finally, buy 3 $52,000 call option contracts for positive price action.
Investors are protected from price drops to $38,000
This option structure does not provide a profit or loss in the range of $38,000 (down 9%) to $52,000 (up 24.5%). Thus, the investor bets that the price of bitcoin on March 31 will be . 8:00 UTC will be above this range with unlimited profit and a maximum loss of 0.214 BTC.
If the price of bitcoin rises to around $56,000 (a 34% increase), this investment will generate a profit of 0.214 BTC. Although there are no costs associated with this option structure, Oslo Børs requires a margin deposit to cover possible losses.