Bitcoin’s Ongoing Struggles

Bitcoin’s nearly nine-month slide is causing even its most dedicated supporters, often referred to as HODLers, to feel anxious. This decline has been significant, and despite its gravity, numerous technical indicators still suggest a bearish trend. Indicators like the Exponential Moving Average (EMA), Weighted Moving Average (WMA), MACD, and Directional Moving Index (DMI) all signal that caution is warranted.

Looking back at history, it’s clear how harsh the crypto winters can be. The five biggest drops in Bitcoin’s past were much worse, with four of them plummeting over 80%. If something similar happens this time around, it could see Bitcoin sliding back to around the $22,000 mark.

This downturn doesn’t happen in a vacuum. It’s mirroring broader trends, with inflation hedges and commodities facing similar issues. Precious metals such as gold and silver have recently slipped below their long-term moving averages. On the other hand, copper has held steady for now, although aluminum just dipped below its 200-day average.

Being completely short on Bitcoin or other volatile crypto assets post-selloff carries significant risks. Maybe this winter won’t be as harsh as past ones, and you know, a sudden bear market rally could quickly change the game, wiping out short positions in an instant. Instead, consider the strategy that’s been successful for some top-performing option income funds over the past year. One such option is Microstrategy (MSTR), which could yield a decent premium.

Individual investors might consider the iShares Bitcoin Trust (IBIT) or the previously mentioned Microstrategy. By deploying an out-of-the-money upside call spread, you can create a bearish position while effectively capping your potential losses.

Trade Strategy

• Strategy – Bear Call Spread (Credit Spread)
• Base Price – Reference $86.93
• Strike – $87 Short Call / $90 Long Call (August 7th Weekly)
• Net Credit Collected – $1.50
• Maximum Profit – $1.50 (if the underlying asset closes below $87)
• Maximum Loss – $1.50 (if the underlying asset closes above $90)

A one-to-one payoff ratio might not seem thrilling, but since this is an out-of-the-money spread, it has specific advantages. The underlying stock can only behave in a few predictable ways before expiration.

• Both options may become worthless upon expiration, allowing you to keep the full credit of $1.50.
• If the stock does nothing, remaining under the short sale strike price, you’ll again retain that full credit.
• To incur a maximum loss of $1.50, the price must exceed $90 at expiration, overshadowing the premium collected.

The negative momentum is apparent, yet attempting to pinpoint the exact bottom—or shorting at the lowest point—can be a risky endeavor. It’s reasonable to maintain a short position, but you should be aware of the inherent risks and have ample time on your side. Until there’s stabilization in the crypto market and for companies like Strategy Inc., a steady income can still be realized through risk-defined credit call spreads.