Bitcoin’s Monumental Surge: Is It Time to Hedge Your Bets?
As we traverse through 2024, Bitcoin’s trajectory has been nothing short of extraordinary. This week, the digital currency famously dubbed "digital gold" soared past the significant milestone of $100,000, marking a remarkable 140% increase year-to-date. With President-elect Donald Trump expressing a favorable stance towards cryptocurrency and hinting at regulatory changes with the SEC, this rally has gained additional momentum.
But as thrilling as the climb has been, seasoned investors know that prudence is essential. So, should you consider booking profits amidst this unprecedented rise? Here at the Extreme Investor Network, we believe exploring risk management strategies while capitalizing on opportunities is vital for any crypto investor.
Understanding Bitcoin ETFs and Their Impact
The game-changing launch of the first Bitcoin ETF, iShares Bitcoin Trust (IBIT), at the start of this year has attracted significant capital inflows—tens of billions, to be precise. IBIT currently leads the market with an impressive $50 billion in assets under management. Following the election results on November 5, it’s worth noting that IBIT alone shot up a staggering 43%, cementing Bitcoin’s position as the seventh most valuable asset globally, even surpassing tech giants like Tesla and Meta.
This surge underscores a critical point for "HODLers" who have weathered the market’s ups and downs—now might be the opportune moment to consider a hedge against any potential downturns, particularly with the ever-present holiday volatility on the horizon.
The Shift in Correlation: Bitcoin and Nasdaq 100
Historically perceived as a safe haven and non-correlated asset, recent trends suggest that Bitcoin has developed a risk-on correlation with the Nasdaq 100. This shift warrants attention as it contrasts with Bitcoin’s original appeal. With the entire investment landscape experiencing new all-time highs across various asset classes, the allure of "booking profits" cannot be ignored.
Implementing a Strategic Trade
To safeguard against possible pullbacks—especially as larger ETFs rebalance and might necessitate selling off portions of their Bitcoin exposure—we recommend exploring defined risk strategies, such as put spreads. Here’s a closer look at one example:
- Buy the $56 1/17/2025 IBIT Put for $4.40
- Sell the $50 1/17/2025 IBIT Put for $1.85
This trade results in a net cost of $2.55, or $255 for one put spread. While this hedge could expire worthless in the event Bitcoin reaches $150k, your Bitcoin exposure remains intact, allowing you to partake fully in the potential meteoric rise.
Conclusion
For those actively participating in the Bitcoin market, the current landscape is a double-edged sword. While the opportunities for growth are unprecedented, so too are the risks that accompany such volatility. At Extreme Investor Network, we encourage you to stay informed, weigh your options carefully, and consider incorporating hedging strategies as part of your investment approach.
As always, we recommend seeking personalized advice from a financial professional to tailor strategies that align with your unique investment profile. Happy investing, and may your financial journey be prosperous!
Disclosures: The author is long BTC and this spread. The opinions expressed here are solely those of the author and do not reflect the views of any affiliated organizations. Please conduct thorough research and consider your particular circumstances before making investment decisions. For more insights and strategies, stay tuned to Extreme Investor Network!