Investors who thrive on Bitcoin sharp price fluctuations could be disappointing. Big banks are preparing to introduce new products that could ease volatility in a market that has already become significantly calmer in recent years.
Most recently, Goldman Sachs filed for a Premium Income Bitcoin exchange-traded fund (ETF). The proposed fund relies on selling (writing) options linked to bitcoin-related exchange-traded products to generate income while providing investors with exposure to the cryptocurrency. BlackRock is looking to launch a similar product.
Selling options is essentially buying insurance against price fluctuations. Underwriters receive a premium in exchange for downside or upside protection, while being exposed to potentially significant losses if the market moves suddenly. Traders often use hedged strategies – holding the underlying asset or ETFs while selling options – to partially offset risk.
If approved, ETFs can use similar covered options strategies to generate yield, although the exact structures vary by product.
Regardless, the net impact would be calmer market conditions. This is because when options are sold in large numbers, traders or market makers who take the other side of these trades end up with long positions. To manage their risks, these entities then hedge dynamically by buying the underlying asset in the event of a decline and selling in the event of an upswing. This dynamic is called positive gamma exposure hedging and tends to limit volatility.
Additionally, the availability of institutional yield-generating products can divert capital away from purely speculative bets, thereby further reducing realized volatility over time. Bitcoin’s implied volatility has been declining for three years, primarily due to the growing popularity of options writing strategies.
Bitcoin today fell to $74,000 after hitting a high near $76,000 on Tuesday. The CoinDesk 20 Index fell more than 1% in 24 hours.
A firm breakout is expected to occur if US stock indices reach new record highs.
“If Bitcoin is looking for external signals, it could remain undecided until major U.S. stock indexes reach new highs. However, we are more inclined to believe that the stagnation of the leading cryptocurrency is a sign of a fragile risk appetite that will soon manifest itself in the market as a whole,” Alex Kuptsikevich, chief market analyst at FxPro, said in an email.
At the same time, the IMF issued a warning about rising global debt, reinforcing Bitcoin’s bullish stance. Stay vigilant!
Read more: For analysis of current altcoin and derivatives activity, see Crypto Markets Today. For a full list of this week’s events, check out CoinDesk’s “Crypto Week Ahead.”
What is the trend
Signal of the day
Bitcoin is struggling to rise above its 100-day simple moving average, a widely watched technical level that reflects the average closing price over the period.
This trend is reminiscent of mid-January, when sellers regained control of the 100-day average and stalled the recovery. Bitcoin saw a sharp decline in the days that followed.
The question now is whether history will repeat itself, or whether this time the level finally gives way, paving the way for faster gains up to $80,000 and beyond.
