June 17, 2022
BTC - 17 June 2022 - Dopex Community Token AnalysisCommunity-Analysis-Series
BTC - 17 June 2022
The Dopex Community Analyst series is a series of strategies, ideas, opinion pieces and educational resource written by independent contributors from the Dopex community. Every month many knowledgeable community analysts share a short analyses of a coin of their choice and share these with Dopex. The goal of these articles is to empower the community and help Dopex increase SSOV volume & deposits. With these articles we hope to provide users with additional information that will help them in making an informed choice of strategy using our products.
Without further ado let’s jump into our next article.
Searching for a Bottom
Cryptocurrencies across the board continue to get bludgeoned and bleed down to lower prices. Bitcoin finally broke its streak of 9 straight down weeks with a 1.5% gain, only to continue to fall in the next two weeks. The question everyone with cash on the sidelines is asking right now is “where is the bottom?”
Historical precedent would indicate that the previous all-time high of roughly $20,000 would be a key support level for bitcoin. In the past bubbles, BTC has never traded below its prior all-time high. However the current macro conditions make it difficult to assume this trend will hold. After years of easy monetary policy, only starting in June has the Fed begun to start selling assets on its balance sheet. With the latest inflation data coming in red-hot at 8.6% year-over-year, it would be expected that interest rates will continue to hike in the coming months, putting strain on speculative assets.
The potential insolvency of Celsius has been a huge downward drag on the market as well. We’ve seen forced selling to cover losses and to sure up collateral for margin positions. While forced selling is typically conducive to marking a bottom, it’s unclear at this time how much more contagion risk might be out there as prices continue to fall and more players on leverage need to scramble to liquidate assets.
There are some indicators that point to current prices being close to a bottom for Bitcoin. The MVRV (market value to realized value) Z-score tracks the market-cap of bitcoin minus the total realized cost basis of the supply. Historically when this metric flips negative, indicating the realized cost basis is greater than the current market value, bitcoin has been in a strong accumulation zone.
BTC is also trading right near its 200-week moving average which has been a level that marked market bottoms in the past.
For a trader looking to buy the dip at slightly lower prices than the current levels, a strategy you can use is to sell cash secured out-of-the-money put options on Bitcoin through Dopex’s Single-Staking Options Vault. The Dopex vaults offer DPX rewards to option writers as well as the premium that is collected from selling the options.
For example, if we wanted to buy 1 BTC at $20,000 we can deposit $20,000 2CRV into the vault for the $20,000 strike options. Option prices vary based on the market price of the asset, implied volatility, and time until expiration. In the case of BTC trading at $22,000 about 3 days until expiration our $20,000 deposit would net about $500 in premiums in addition to extra DPX rewards.
If BTC were to fall to say $18,500 at expiration, we would have gained the $500 premiums but lost $1,500 from having to cover the exercise of the put options which are now in the money, leaving our net total at $19,000. With BTC at $18,500, our $19,000 in stables can be converted into 1.027 BTC.
The advantage of using this strategy to buy the dip instead of a simple limit order for 1 BTC at $20,000 is that you gain yield in the event that your target price is not hit. Additionally, if your target price does get hit, you are able to buy slightly more bitcoin because you earned option premiums.
The downside to the strategy is the options are only exercised at expiration. In the event that BTC falls below $20,000 before expiry, and then the price recovers back above at expiration, you will have missed the opportunity to buy that dip.
The author of this article owns spot positions in BTC and Dopex tokens DPX and rDPX.
Views expressed in this article are the author’s own and not reflective of the position or professional views from Dopex.io.
Dopex reimburses analyst contributors with a small payout to partially compensate the time spent on research and writing. For questions feel free to jump into our discord (discord.gg/dopex) and chat with the team or analyst contributors directly.
Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner. Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.
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