Bitcoin
Crypto hedge fund refutes JPMorgan’s claim that Bitcoin ETF is short-term negative for BTC
Cointelegraph By Sam Bourgi
Strategists at JPMorgan Chase caused quite the stir in January when they informed clients that the approval of a Bitcoin (BTC) exchange-traded fund, or ETF, would be a short-term headwind for the digital asset. A United Kingdom-based cryptocurrency hedge fund manager is attempting to pour cold water on those claims, asserting that JPMorgan’s analysis isn’t based on quantitative analysis or in-depth research.
The crux of JPMorgan’s argument is that a new institutional-grade ETF would introduce competition for Grayscale Bitcoin Trust, or GBTC, which has amassed over $22 billion in assets under management. The bank’s strategists say that the new ETF could lead to a cascade of GBTC outflows and cut into the premium.
GBTC boasts a large premium over Bitcoin largely because of its dominant position in the market. Institutional investors that want exposure to the digital asset without having to buy it outright have few options outside of GBTC.
Tyr Capital Arbitrage SP has completed a detailed refutation to JPMorgan’s claims. The fund manager told Cointelegraph: “We disagree with the JPM assessment” on grounds that there is no evidence suggesting that a decrease in the GBTC premium will lead to negative short-term returns for BTC.
“Instead we found evidence of the opposite, namely a decrease in the GBTC Premium tends to be followed by short term gains in Bitcoin,” Tyr says in its yet-to-be-released report.
The report continues:
“We found no evidence that supply originating from the ‘new’ shareholders affects the premium in any meaningful way. […] We found, instead, evidence that supply originating from existing or ‘old’ shareholders is negatively affecting the premium (effectively ‘front running’ or discounting the effect the ‘new’ shareholders will eventually have).”
Nick Metzidakis, Tyr Capital’s research lead, told Cointelegraph that his analysis of GBTC’s premium history over the past five years suggests that a “decrease in the premium has a positive impact on Bitcoin.”
As for Grayscale Bitcoin Trust, Metzidakis said that increased competition may affect its market share but that its assets under management will likely continue to rise as more investors allocate to Bitcoin.
Despite rumblings to the contrary, Metzidakis doesn’t believe the United States Securities and Exchange Commission will greenlight a Bitcoin ETF this year. That being said, the growth of crypto as an asset class “may encourage regulators to fast track their acceptance of a Bitcoin ETF as they are motivated to provide a safe and controlled point of access” to the new asset class.
He continued:
“Institutional adoption of Bitcoin can only be positive for the price of Bitcoin in the long run yet it may increase its correlation to other asset classes. That would especially be the case in times of crisis.”
Cointelegraph By Marcel Pechman
Historical data shows that it is nearly impossible to consistently predict Bitcoin’s price action and many traders that attempt this end up losing money. Now that Bitcoin trades near $50,000, the ultimate goal for most traders is to hold on to their current holdings and incrementally add to them in a way that is not terribly risky.
Options strategies provide excellent opportunities for traders who have a fixed-range target for an asset. For example, using leveraged futures contracts might be a solution for a scenario where one expects a price increase of up to 28% over the next month. Of course, using a tight stop loss lessens the viability of the trade.
On the other hand, using multiple call (buy) options can create a strategy that allows gains that are four times higher than the potential loss. These can be used in both bullish and bearish circumstances, depending on the investors’ expectations.
The long butterfly strategy allows a trader to profit from the upside while limiting losses. It’s important to remember that options have a set expiry date; therefore, the price increase must happen during the defined period.
The Bitcoin (BTC) calendar options below are for the March 26 expiry, but this strategy can also be used on Ether (ETH) options or a different time frame. Although the costs will vary, its general efficiency should not be affected.
The suggested bullish strategy consists of buying 1 BTC worth $48,000 call options while simultaneously selling double that amount of $56,000 calls. To finalize the trade, one should buy 1 BTC worth of $64,000 call options.
While this call option gives the buyer the right to acquire an asset, the contract seller gets a (potential) negative exposure.
As the estimate above shows, if BTC is trading for $48,700, any outcome between $49,380 (up 1.5%) and $62,630 (up 28.6%) yields a net gain. For example, a 10% price increase to $53,570 results in a $4,000 net gain. Meanwhile, this strategy’s maximum loss is $1,350 if BTC trades below $48,000 or above $64,000 on March 26.
This allure of this butterfly strategy is the trader can secure a $4,050 gain, which is 3x larger than the maximum loss, if BTC trades from $53,550 to $58,460 expiry.
Overall it yields a much better risk-reward from leveraged futures trading considering the limited downside.
The multiple options strategy trade provides a better risk-reward for bullish traders seeking exposure to BTC’s price increase and the only upfront fee required is the $1,350 which reflects the maximum loss if the price is below $48,000 or above $64,000 at the expiry date.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
San Lee
As the traditional financial world begins its mainstream adoption of crypto assets, the process of legitimizing digital assets as financial products pose myriad of risks and regulatory challenges.
Breaking Down the SEC’s Future Crypto Regulations
Today, the U.S. Securities and Exchange Commission (SEC) released an 8-page document that details the framework in which the agency will examine digital asset investments.
Demanding regulatory compliance across areas ranging from custody, bookkeeping, registration requirements to conflicts of interest protocols, the SEC has made it clear to major broker-dealers and investment advisers that digital assets will face similar levels of scrutiny as traditional securities.
For instance, the SEC stated that it “observed inadequate [Anti Money Laundering] procedures, controls, and documentation” due to the decentralized nature of many digital assets.
For advisories registered with the Financial Industry Regulatory Authority (FINRA), they will require stringent Know Your Customer (KYC) procedures in compliance with FINRA Rule 2090.
Many of the key examinations rehash traditional financial practices and merely reapply them to digital investments. However, new concerns have also emerged due to the fundamental differences between asset classes. Questions such as how much control an investment firm should have over their client’s private keys are one of many novel issues brought up in the compliance notice.
The timing of the report does not coincide with any recent event. However, the prevalence of social media platforms in the explosive rise of altcoins such as Dogecoin have likely spurred discussions within the SEC on the potential dangers of an unregulated industry.
Nonetheless, officials framed the notice as a reminder of the risks that may be associated with digital assets, and the necessity of compliance frameworks to protect the shared interests of market participants.
Featured Image from Unsplash
Cointelegraph By Jordan Finneseth
The cryptocurrency market faced another day of downward pressure as the unease in the traditional markets continues to spread following the recent interest rate spike on the 10-year U.S. Treasury bond.
Data from Cointelegraph Markets and TradingView shows that the price of Bitcoin (BTC) fell to a low at $44,710 late on Feb. 25 before buying at the key support returned to help the digital asset recover back above $46,500 but generally, analysts are looking for $50,000 to become an established support before expecting bullish continuation.
Despite major BTC purchases by MicroStrategy, Tesla and MassMutual, a majority of institutional investors still have security and tax treatment concerns that prevent them from investing in Bitcoin, according to Galaxy Digital co-president Damien Vanderwilt.
Institutional investment has been a significant source of optimism in the cryptocurrency sector in 2021, but its influence in helping BTC reach a market cap of $1 trillion may be overstated as recent analysis shows that stablecoin whales and retail traders still hold the most buying power.
Interest rate increase puts pressure on GBTC
On Feb. 25, the interest rate for the 10-year U.S. Treasury spiked to 1.52%, its highest level in over a year.
According to Chad Steinglass, Head of Trading at CrossTower, the move led to market-wide pressure that pushed the “GBTC premium down as low as negative 6% and it closed around negative 2% today.” The analyst sees interest rate volatility as a major source of market volatility, as the long end of the curve steepens while the U.S. dollar is pushed lower.
Cryptocurrencies fell under increased pressures as equity markets deteriorated throughout the day, possibly due to a “scramble for liquidity” resulting from traders “pushing up against margin calls and needing to free up cash.”
Steinglass said:
“I interpret the GBTC premium collapse as a sign that either retail is dumping to free liquidity, or large fund holders like ARKW are seeing outflows, which causes them to sell GBTC along with everything else.”
Traditional markets are still choppy
The 10-year Treasury yield pulled back .0582 basis points to 1.46 on Feb. 26, marking a 3.82% decrease from its high on the previous day. This leadi to a choppy day in the markets which saw the major indices close mixed.
The NASDAQ finished the day up 0.56%, recovering some of its losses from the 3.5% drop on Feb. 25. Meanwhile, the S&P 500 and DOW finished the day in the red, down 0.48% and 1.51% respectively.
A majority of the top cryptocurrencies also took on sharp losses on Friday, with the exception of Cardano (ADA), which became the third-ranked cryptocurrency by market cap after its price broke out to a new all-time high at $1.29. The current excitement for the altcoin appears to be connected to the upcoming ‘Mary’ mainnet launch scheduled for March 1.
Basic Attention Token (BAT) has also battled back against the market sell-off to post a 6.43% gain following the Feb. 23 announcement of the upcoming Brave Decentralized Exchange (DEX).
Ether (ETH) price is down 7.19% and trading below $1,500, while Binance Coin (BNB) has dropped 8.36% to $224.14
The overall cryptocurrency market cap now stands at $1.533 trillion and Bitcoin’s dominance rate is 61.3%.
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