April 29, 2022
ETH - 29 April 2022 - Dopex Community Token AnalysisCommunity-Analysis-Series
ETH - 29 April 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.
A black swan and a goblin walk into the bar…
Ethereum is the 2nd largest market cap, behind Bitcoin. It is a decentralized smart contract blockchain.
- $3,050 as of April 17th
- $367.4 Billion Market Cap
The tokenomics of ethereum do affect this strategy. At some point in the near future, date tbd, ethereum will transition from proof of work, to proof of stake. TLDR, this is considered by many to be a bullish catalyst. Users can stake their ethereum for yield, further compounding it using defi protocols. EIP-1559, also called the London Hard Fork, went live on August 4th 2021. It introduced a base fee and a smaller priority fee. The base fee gets burned, which allows for deflationary properties when ethereum grows larger.
Position & Analysis
I believe we are headed for goblin town.
In other words, I think there are many signs indicating that we are/have already entered a bear market. I don't seem to be the only one. The IMF has projected for slower growth over the next 3 years for nearly every region in the world.
Additionally, I believe stagflation in the United States is becoming a reality. Stagflation is when Inflation is rising, Unemployment is rising, and GDP is decreasing. We already know inflation is high.. Like really really high! 8.5% was the reported number in March 2020. Additionally, gas prices are increasing due to the Russian-Ukraine conflict, which in turn slows economic growth. We already know the IMF projects slowed economic growth over the next few years, coupling that with the high inflation we’re seeing today, and no end in sight for the Russian-Ukraine conflict, it’s a fair conclusion that markets will see a downward trend over the next 24 months.
Lastly the possibility of a black swan event (huge, unforeseen market crash) becomes more likely in my opinion. This actually goes against what a black swan event is in principle, considering “unforeseen” is in the definition, but I think it would be fair to assume that when the economy has been running really hot for 2 years, and in the macro view, there’s stormy sea’s ahead, could cause investors to go risk off, causing a broad market sell off.
We’re going to deploy a very simple, 2 step strategy called a *synthetic put *using Dopex SSOV, as well as GMX. We can capitalize off of a market downturn or black swan event, while protecting ourselves if the market decides I’m wrong and starts to pump.
To execute a synthetic put, we short ETH using GMX. For this strategy, we’re not using leverage..despite macro conditions looking rocky, shorting ETH with leverage with the merge looming is not something I’ll endorse. This part of the strategy is what allows for the profit should ETH start to trend down.
The next leg of our strategy is played on Dopex. Depending on your timeframe, you could use the new weekly SSOV, or the traditional monthly epoch SSOV. This part is your safety net.. if ETH decides to trend up, you have the ability to buy at the strike price, and cap your losses. The strikes available are $3000, $3100, $3200, and $3300 for this weekly SSOV, and Monthly strikes are $3200 $3600 $4000 and $4500. In order to determine which call you’d like to purchase, you need to assess at what price would you like your downside protection to kick in. If you’re willing to pay an expensive premium, and have your protection start from close to where you entered, the most you can lose is the premium paid.. ie: start shorting at $3000, buy a call for $3000. This also means you’re not in profit on your short until you cover the expensive premium. If you’d like to enter profits on your short quicker, but risk your protection starting at a higher price, it makes more sense to purchase a call further out of the money, say $3200. This will result in a cheaper premium, easier to be in profits on your short, but your protection starts at $3200 plus premium paid. If ETH closes the week between where you opened your short, and where you bought your protection, you’re out of luck.
Good: If the strat goes as expected, ETH trends down and you’re able to cash in profit anytime after the short position on GMX covers the premium you paid for the call on Dopex. For example, if you bought the weekly $3100 call, the premium as of writing on April 21st is $17. From the time you opened your short, ETH would need to move down $17 dollars, and anything lower, you’re in the money!
Bad: If things go poorly, that means ETH trends up, likely playing off the merge narrative. Assuming you opened your short when ETH was at $3,000. In order to protect yourself from losing too much money, you decide to buy the $3100 call, with a $17 premium. This means you pay $17 for the right to buy ETH at $3100 dollars. Your protection kicks in at $3,117. If at the end of the week ETH is at $3200 dollars, you’re able to buy it for $3100, and sell at $3200. Since you entered your short at $3000 you only lost $117 instead of $200.
I’m currently a USDC bull farming on Stargate, with moderate LP positions in the chad tokens - dpx, rdpx, and jpeg.
Views expressed in this article are the author’s own and not reflective of the position or professional views from Dopex.io.
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