Bitcoin has been the best-performing asset in 2021, gaining over 74% year-to-date at a price of $29,000 on April 14th. However, Bitcoin bulls were disappointed as the cryptocurrency faced resistance at $31,000.
Gold, on the other hand, is only 4% from its all-time high, indicating the possibility of a weaker U.S. dollar as investors increase the odds of recession and further fiscal turmoil for the world’s largest economy. Behind the bullish price momentum for Bitcoin is the weakness in the U.S. financial system, in particular the $100 billion in quarterly net withdrawals at First Republic Bank and legislative efforts to approve an increase to the national debt ceiling of $31.6 billion.
Cryptocurrency traders are concerned about the regulatory environment, and the statements revealed in April by the New York Federal Reserve added to the uncertainty. The guidelines disclosed could potentially hinder the USD Coin stablecoin issuer, Circle’s access to the Fed’s securities reverse-repurchase program, the safest vehicle to get yield on deposits. Unfortunately, it is impossible to predict the outcome of the banking crisis or the timeline for regulatory actions against exchanges and stablecoin issuers.
However, financial crises are a net positive for Bitcoin investors as it forces the U.S. Federal Reserve to expand its emergency funding programs and take out additional unprofitable long-term debt from the system. With that, professional traders use the bullish Iron Condor strategy to maximize gains if Bitcoin breaks above $32,000 in May with limited risk.
Buying Bitcoin futures pays off during bull markets, but the issue lies in dealing with liquidations when BTC price goes down. This is why pro traders use options strategies to maximize their gains and limit their losses. The skewed Iron Condor strategy can yield profits above $31,400 by the end of May while limiting losses if the expiry price is below $31,000.
The Iron Condor consists of selling the call and put options at the same expiry price and date for a specific strike. This strategy requires the investor to short (sell) 1.5 contracts of the $33,000 call option and 3 contracts of the $33,000 put option. Then, the buyer repeats the procedure for the $35,000 options, using the same expiry month.
Buying 4.8 contracts of the $31,000 put option to protect from an eventual downside is also required. Finally, one needs to purchase 7.8 contracts of the $36,000 call option to limit losses above the level. The target profit area is $31,420 (6% above the current $29,730 price) to $36,000 (21.2% above the current price). The net profit peaks at 0.225 BTC ($6,685 at current prices) between $33,000 and $36,000, but they remain above 0.063 BTC ($1,750 at current prices) if Bitcoin trades in the $31,850 and $35,700 range.
The benefit of this trade is that a wide target area is covered while providing a 357% return versus the potential loss. Essentially, it offers leverage opportunity without the liquidation risks from typical futures contracts. This investment required to open this skewed Iron Condor strategy is the maximum loss – 0.063 BTC or $1,750 – which will occur if Bitcoin trades below $31,000 on May 26th.
Cryptocurrency trading is highly volatile, and it is essential to conduct thorough research before making any investment decisions. This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their research before making a decision.