The potential approval of a Bitcoin ETF (Exchange Traded Fund) should open up new opportunities for traders. The expectations surrounding this event are affecting the market today, but one expert believes they will have a greater impact in the coming months.
As of this writing, Bitcoin is trading at $37,400 with a 1% gain in the last 24 hours. Last week, the cryptocurrency remained in the green with a 3% gain, holding the critical level of $37,000 despite increasing selling pressure.
The Great Strategy To Expect Bitcoin ETF Approval
While the value of Bitcoin has increased with an incredible 125% increase this year, a new trading strategy has emerged, promising high returns after the anticipated Bitcoin ETF. A seasoned market analyst, Markus Thielen, reveals insights on exploiting the changing dynamics of the crypto market for profitable trading in an essay posted on the options platform Deribit.
Thielen’s analysis reveals a “strange” trend in the Bitcoin market: despite its significant rally, the 30-day realized volatility remains at a moderate 41%, which is very different from the 5-year an average of 63%.
According to the analyst, this reduced volatility reflects a decrease in interest in leveraged Bitcoin options, a direct result of institutional players entering the crypto arena.
These players, who hold significant Bitcoin assets, tend to trade in volatility, fostering a more stable market environment that mirrors traditional financial markets.
In this scenario, the strategy of selling strangles (120% calls and 80% puts) on a 30-day rolling basis stands out. According to Thielen, this method showed a profit of approximately 23% of cases last year, as can be seen in the chart below, marking a significant improvement from decentralized finance (DeFi) high-risk profile in summer.
At that time, DeFi protocols attracted billions of capital to the crypto ecosystem which contributed to the initial rally of Bitcoin. While there are differences in current market dynamics, options players are likely to benefit from this strategy.
This strategy, especially effective during periods of low risk, suggests a window of opportunity for traders to take advantage of before introducing institutional influence.
Institutional Participation Is Expected to Strengthen the Bitcoin Market
The anticipated launch of the Bitcoin ETF is set to change the market even more. This event is expected to recalibrate the put/call ratio, which leans heavily on calls.
Thielen compared this to the S&P 500, where the put/call ratio is more balanced. The Bitcoin market will soon witness a similar equilibrium, which presents an opportunity for traders to use volatility through a trading strategy.
Additionally, Thielen said the post-ETF approval period may be the last chance for traders to take advantage of high levels of volatility. When institutional players start systematically selling volatility, the market is expected to enter a phase of reduced price volatility, making volatility-based strategies less effective.
The analysis also touched on Bitcoin’s correlation with broader market indicators such as the VIX index. While the Bitcoin market continues to have high volatility relative to the VIX index, this gap is expected to narrow, offering traders a strategic feature in timing their trades effectively.
In conclusion, as the Bitcoin ETF approaches and institutional participation increases, savvy traders may look at selling strangles as a strategic approach to take advantage of current market conditions.
Cover image from Unsplash, chart from Deribit and Tradingview