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Ways to tackle the growing cryptocurrency craze
The cryptocurrency playing field is about to get crowded
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Last week, Bitcoin (BTC) stopped at $72,000 in an attempt to recapture the all-time high of $73,805.25 reached on March 14. Fueling this latest run at March’s main hurdle are Bitcoin spot Exchange Traded Funds (ETFs), which have reached $880. million inflows Tuesday, according to tracking site Farside. Since their approval in January by the Securities and Exchanges Commission (SEC), these spot ETFs have buoyed the enigmatic cryptocurrency market, with stock exchanges in the UK, Hong Kong and Australia following suit and fueling the flames.
On Friday, a better-than-expected jobs report boosted bond yields and poured cold water on the prospect of accommodative monetary policy from the Federal Reserve, which would be another bullish indicator for good BTC returns this summer ahead of the fall. Where does this fit into the cryptocurrency industry? Some answers – as it always seems – can be found by options traders.
But first, Joeseph Hargett, senior equity analyst at Schaeffer, offered important context on the BTC rally regarding its latest “halving” event on April 20, where, in an effort to limit total supply and increase scarcity, the amount of new Bitcoin is halved every four years. . Hargett noted that cryptocurrency investors know this event is coming and subsequently bid up BTC before attracting new investors. This explains why BTC is only up 13% since the halving, but is almost 70% higher in 2024 – the rally was already a given. This makes the April 20 close at $65,500 an important indicator as a potentially bearish indicator, and any move beyond the aforementioned all-time highs could be considered a waved checkered flag.
While BTC is in line, options traders are redirecting their attention to Ethereum (ETH), the second most popular cryptocurrency, unique for its dual-use functionality on the blockchain. ETH is up 26% in the past month and 62% in 2024, but options traders continue to load up on puts. On March 30, Ether’s put-call open interest rate rose to 0.61, the highest in at least a year, according to data source Glassnode. But this isn’t necessarily a bearish bet; ETH bulls may be using puts as a hedge against any further upside, an outcome that certainly appears to be in the works.
That’s because word is spreading that the spot ETFs that are driving BTC may finally be coming to ETH, with the potential to attract $4 billion in inflows in the first five months, according to crypto analytics firm K33 Research. According to the chart edited by Hargett below, note the technical formation of the flag after the consolidation below $3,900. Given the way spot ETFs have supported BTC lately, momentum on the spot ETH front could break that ceiling in the short term.
However, there is a disadvantage. These spot ETFs do not trade options, and individual stocks that list options are at an increased premium at the moment. Coinbase Global (COIN), Marathon Digital (MARA), Riot Blockchain (RIOT), and CleanSpark (CLSK) all have implied volatility (IV) of 80% or higher. So while their Schaeffer Volatility Index (SVI) might be in the low percentile, the high IV means you have to buy in and be right, immediately. With volatile assets like cryptocurrencies, paying a pretty penny is a risk, even as momentum and bullish signals build.
Hargett, along with Senior Market Strategist Chris Prybal, have a different option for the pragmatic options trader. Robinhood (HOOD) still exists as a cryptocurrency broker and has a much more palatable IV, along with a number of other enticing technical setups that we break down in our Schaeffer Daily Bulletin. So if you’d rather dive in and chase cryptocurrencies without getting married to them, crypto-adjacent stocks like HOOD remain an interesting play.
Whatever type of cryptocurrency exposure you’re comfortable with, the playing field is about to get crowded. According to a Bloomberg report, “the next year and a half could see the largest wave of cryptocurrency-related initial public offerings on record,” according to Matthew Kennedy, senior market strategist at IPO researcher Renaissance Capital. Kennedy noted that up to 15 cryptocurrency companies could go public. So if nothing out there seems tempting enough, wait a few months and go back.
