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Home » 3 strategies to safeguard Bitcoin gains during the Ethereum ETF frenzy
3 strategies to safeguard Bitcoin gains during the Ethereum ETF frenzy
3 strategies to safeguard Bitcoin gains during the Ethereum ETF frenzy

3 strategies to safeguard Bitcoin gains during the Ethereum ETF frenzy

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By admin on 2024-05-24 Cryptocurrency, Opinion

Cryptocurrency’s top performer has been dethroned. The highly anticipated launch of exchange-traded funds (ETFs) for Ethereum in the United States has caused Ether (ETH) to surge more than 20% since May 20. Bitcoin’s (BTC) performance, in comparison, appears lackluster. While there are still opportunities to invest in the leading cryptocurrency, not all of them are worth pursuing.

For those who are die-hard Bitcoin maximalists, you can stop reading here. You are already aware that the U.S. dollar is on the verge of collapse and that BTC reaching $200,000 is just around the corner. For everyone else, here are three practical tips for safeguarding your crypto profits once this bull run loses momentum.

Firstly, it’s important to realize that the introduction of Ether ETFs may not necessarily benefit Bitcoin. While it is a positive development for the overall crypto market, it may not have an immediate positive impact on BTC. With Ethereum dominating the market narrative in the coming months, it is likely that BTC will retest its previous price support levels.

Instead of making significant directional bets, consider market-neutral strategies. One profitable approach this year has been the carry trade between BTC’s spot and perpetual futures markets. With Bitcoin bulls increasing their long positions, funding rates on futures exchanges have soared to over 20%. Contrarian investors have been capitalizing on this by collecting payments for shorting BTC perpetuals while hedging their risk in the spot markets.

For a more sophisticated trade, investment research firm 10x Research recommends the “covered strangle” strategy. This strategy involves holding spot BTC while selling out-of-the-money call and put options that expire in December at the $100,000 and $50,000 levels, respectively. According to 10x Research, this strategy offers a “17% downside buffer or 17% more yield, depending on where BTC closes in December.”

Secondly, it may be wise to avoid self-custody and instead consider investing in BTC through ETFs. While Bitcoin is often touted as a long-term hedge against inflation, it is important to protect your assets from scams and exploits that can drain your wallet. Self-custody, although favored by Bitcoin maximalists, is not suitable for most holders unless they possess advanced technical skills. Exploits have already drained over $27 billion, which is more than 1% of the total market capitalization of cryptocurrencies. Retail holders are even more vulnerable.

The safest option is to invest in BTC futures on established platforms like the Chicago Mercantile Exchange (CME). Cash-settled futures are not susceptible to exploit risk, and BTC Micro Futures closely mirror spot positions. However, the complexity and costs associated with routinely rolling expired contracts should be taken into account.

Bitcoin spot ETFs are also a viable option for most holders. BlackRock’s iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC) offer a good balance between security and cost, with expense ratios of 0.25%. However, it is important to note that bid-ask spreads and trading premiums can impact returns, and custodians’ partial reliance on hot wallets introduces exploit risk.

Lastly, consider investing in the booming copper industry. The best Bitcoin play may not involve Bitcoin itself. Copper has shown a strong correlation with Bitcoin, surpassing almost every other commodity. It has practical uses, such as wire and penny production, and its long history since the Neolithic period makes it unlikely to be replaced by a competing smart contract network.

On the other hand, Bitcoin’s correlation with technology stocks has been gradually decreasing. BTC is no longer seen as a leveraged bet on the NASDAQ. Copper futures, known for their liquidity and capital efficiency, outperform BTC as a reliable inflation hedge while delivering superior risk-adjusted returns.

Bitcoin may have been the first mover in the crypto industry, but it’s the last mover that truly matters. With the approval of Ether ETFs, Ethereum’s institutional adoption is set to skyrocket. This is a good time for Bitcoin maximalists to start looking beyond Bitcoin.

Alex O’Donnell, the founder and CEO of Umami Labs, is a financial journalist with seven years of experience covering M&As and IPOs at Reuters.

Please note that this article is for general information purposes only and should not be considered legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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