Bitcoin investors who profit from the cryptocurrency's wild price fluctuations may face disappointment as major banks prepare to launch new products designed to reduce market volatility. Recently, Goldman Sachs applied for a Bitcoin Premium Income exchange-traded fund (ETF) that generates income by selling options tied to bitcoin-linked products, while providing exposure to the cryptocurrency. BlackRock is also planning a similar product.
The strategy of selling options, or writing insurance against price swings, can help mitigate risk. If approved, these ETFs may employ covered options strategies to generate yield, resulting in calmer market conditions. As options are sold in large quantities, dealers and market makers taking the other side of these trades will have long positions, prompting them to dynamically hedge by buying the underlying asset on declines and selling on rallies, thereby restraining volatility.
The availability of yield-generating products may also divert capital from speculative bets, further decreasing realized volatility over time. Bitcoin's implied volatility has been declining for three years, mainly due to the growing popularity of options-selling strategies.
Currently, bitcoin has pulled back to $74,000 after reaching highs near $76,000 on Tuesday, with the CoinDesk 20 Index dropping over 1% in 24 hours. A firm breakout is expected if US stock indexes hit new record highs. According to Alex Kuptsikevich, chief market analyst at FxPro, bitcoin may remain indecisive until key US stock indices hit new highs, but its stagnation could be a sign of a fragile risk appetite that will soon manifest in the broader market. Meanwhile, the IMF has warned of rising global debt, strengthening the bull case for bitcoin.
Bitcoin is struggling to rise past its 100-day simple moving average, a widely watched technical level that reflects the average closing price over the period, reminiscent of mid-January when sellers regained control at the 100-day average, stalling the recovery and leading to a sharp decline in the days that followed.