We are counting down to the market open here on Wall Street.
And crypto this morning is down slightly as we move into the second half of Q1.
Bitcoin is down over 20%, which builds on a double-digit loss last year.
Options trading played a part in this price action in late January.
Traders pulled out of crypto ETFs and also short-term options strategies.
Market makers holding short gamut positions were caught off guard by the downturn, and they did have to buy puts or sell spot futures aggressively to hedge.
Now while options strategies profited.
In the short term, Bitcoiners say they are dangerous in the long term.
They do argue for continued accumulation of the total token, and some say the increased volatility could be pointing to a bottom for Bitcoin.
While joining me as we kick off this holiday shortened week is Alex Bloom, CEO of.
Alex, good morning and thank you so much for joining us.
So what is your view of where Bitcoin stands right now and in terms of price action, are we near the bottom of the recent sell-off?
Hey Remy, it's great to be with you again.
Um, yeah, I think there's not a completely clear direction of if we're at the bottom or not.
However, you know, when we touched 600 a couple of days ago, we saw every kind of major, uh, flash of a bottom signal, at least a local bottom from very high implied volatility spikes, sharply negative funding rates, and a ton of liquidations.
There's not much left to liquidate to the downside.
Uh, that being said, you know, historically, if you look at the price of Bitcoin, you know, right now we're at about a 50% drawdown that you've seen much greater drawdowns than that historically, but at the same time, historically those drawdowns have been getting less and less over each successful, successful, successive, uh, period of, of Bitcoin's history.
And so, you know, I think this is probably a good risk adjusted place to start to enter into the market.
I know some of our clients, institutions, and larger buyers of Bitcoin are.
Uh, putting a toe in the water here and um trying to pick up cheap Bitcoin.
And Alex, I'm sure you're keeping a close eye on data when it comes to price action in addition to the actual price.
So take us through the short term options strategies and also tell us how they contributed to the selloff we saw earlier this month.
Yeah, so I think there's a couple of things.
One is, you know, over time, implied volatility has been trending lower, and what we've seen is a lot of these institutions now have a mandate to generate income.
So clients of ours, they hire us to do this or some groups are doing it in-house, and what ends up being the case is they tend to just do the most simple strategies, which is selling calls and selling cash secured puts.
These things tend to make you, you can make 1% every month and then, You get a move like we got a few days ago with 20-30% down in a couple of days, and you can erase 3 years of returns in a single week.
And so, um, I think some people are licking their wounds from that.
Um, these strategies. are kind of deceptive because they'll, they'll make money for you for 6 months, a year, and be like, oh my God, this is amazing.
It's like free money, and it's just kind of classic, uh, picking up pennies in front of a steamroller activity where all of a sudden you get blown out.
What ends up happening also is, uh, people that are short to the put side now need to start covering, they've sold short puts, uh, they need to start covering those positions, and it just creates a cascade of selling as people cover and, um, can get really.
Ugly really quickly and now with the ETF options, the scale and size of that derivatives market is greater than it's ever been, and so, though we're more institutional now, you still have major volatility in play.
Yeah, and while I have you here, I do want to get your take on this because there are many opinions.
So would you say Bitcoin is still trying to prove itself as a reserve asset and inflation.
Um, I think there's kind of two layers to proving it.
I think that in terms of the fundamental way that Bitcoin works, it's not really up for debate.
It's hard money with a finite supply that isn't subject to inflation or policy changes like a fiat currency, and that's why people are attracted to it and why, um, it's responded well to increased global liquidity over time.
That being said, if people treat it like a speculative asset, it's going to trade like a speculative asset over the short or medium term.
And so what needs to change is the composition of buyers and why they're holding it, going from, it's been a high high running, high return, high sharp asset for a long time, and it's probably now maturing into some kind of more, uh, not boring, but more boring, uh, reserve asset, and, I think we're kind of in this inflection point middle phase where some people hold it as a reserve asset, some people hold it to gamble on it, and until that kind of works itself out, it's gonna kind of have a foot in both, both sides, both camps.
And Alex, before I let you go, we have about 60 seconds here.
So as the market matures and based on what you just said, why are large institutional bitcoin holders now shifting their strategy to prioritize lower risk and also returns in the range of say 5 to 7%?
Yes, so I mean historically clients have hired us to generate Bitcoin denominated returns for, you know, we work with clients with $10 million or greater, a lot of public companies, and now they're on Wall Street or they have real investors and real diligence, and they need to show that they're doing something with that money.
Shooting for the stars, if you can make 20%, you can lose 20%. percent.
But what the market wants is low volatility yield that shows I can compound Bitcoin over 35, 10 years, and, you know, 5% compounding over 10 years is insane levels of uh returns and that's kind of the maturation of where the whole market's going and um where we see our clients going as well.
Well Alex, it was great talking to you.
Thank you so much for joining us this morning.
We are counting down to the opening of the traditional equity markets, so we appreciate your insights and your perspective.
