Original author: BitMEX
In our articlelast week, we suggested maintaining a cautiously optimistic stance amid the generally bullish sentiment in the market. Over the following week, despite the overall market optimism, the price of $BTC steadily declined from $64,500 to a low of $60,000. Currently, it is hovering around $62,000. We hope you have managed to generate some decent gains, or at least avoided losses.
In today's article, we will outline the latest positive macroeconomic tailwinds that support the long-term positive outlook for the cryptocurrency market. While negative news still exists, we will explore why the current price levels may present a good opportunity to establish long positions, while also considering short-term risks.
As always, we will share how to potentially leverage crypto options to capitalize on these market views, while accounting for both upside and downside risks.
Let's get started.
First, the reasonswhy we remain cautious
Before delving deeper, we want to highlight a few factors that continue to drive our cautious outlook.
The continued strong rally in the Chinese stock market may continue to divert traders' attention and capital away from cryptocurrencies. This can be seen from the discount prices of the off-shore USDT/CNY withdrawal channels, which have remained above 1.5% for the past two weeks.
The Bitcoin ETF has not maintained a sustained strong inflow of capital. From October 1st to 3rd, there were three consecutive days of outflows totaling -$400 million, indicating a lack of strong consensus among traditional investors.
Reasons to buy at current levels
Fed officials reach consensus on rate cut targets; Thursday's CPI data may lead to more aggressive cuts
Recent interviews with senior Federal Reserve officials this week show that everyone agreed on the 50-basis-point rate cut decision in September, with reduced concerns about inflation and a greater focus on the importance of employment data. This suggests the Fed is more willing to accelerate the pace of rate cuts to maintain the healthy development of the US economy. This outlook is positive for risk assets like Bitcoin and US stocks, as it implies increased market liquidity.
In summary:
Fed Vice Chair Philip Jefferson stated that the central bank's risks around employment and inflation targets are now more balanced. (Source)
Boston Fed President Susan Collins said on Tuesday that the US central bank is likely to deliver more rate cuts as inflation trends weaken. (Source)
New York Fed President John Williams said the central bank is "well-positioned" to achieve a soft landing for the US economy, suggesting support for a more gradual pace of rate cuts after the 50-basis-point hike in September. (Source)
If the CPI data released on Thursday comes in better than expected, it could significantly boost the Fed's confidence in accelerating the pace of rate cuts, as they prioritize creating a monetary environment conducive to a soft landing.
Weakening of the Japanese Yen/US Dollar
The JPY/USD exchange rate chart is another important indicator of the global economic landscape and for crypto traders. Our boss Arthur Hayes has long emphasized that a strong Yen could potentially pose risks to the current financial markets.
Fortunately, we can now rest easy, as the Bank of Japan has reiterated its intention to delay further rate hikes.
Although Japan's inflation-adjusted wages and household spending declined in August, analysts believe the underlying trend shows wages and consumption are gradually recovering. This should support the central bank's plans for future rate hikes. However, on Tuesday, Japan's new Economy Minister Akira Akazawa expressed confidence in the government's timing of future rate hikes by the central bank, despite some uncertainty around the new political leadership's stance on monetary policy. The Bank of Japan governor also stated that the bank has ample time to carefully examine market developments, even as actual interest rates remain deeply negative.
Putting your market views into practice: Trading options
Considering the factors mentioned above, we maintain the same view - 1) BTC will see moderate upside, but 2) is unlikely to break above $68,000 or set a new all-time high in the coming weeks.
Consider a bull call spread strategy
A bull call spread strategy involves buying a call option with a lower strike price while selling a call option with a higher strike price, both with the same expiration date. This is an ideal strategy for traders who believe the underlying asset (in this case, Bitcoin) will experience moderate upside but not exceed a certain price point. It allows for potential profits with limited risk, while also providing some downside protection.
Trading strategy
Buy 1 $BTC call option with a strike price of $63,000, expiring on October 18
Sell 1 $BTC call option with a strike price of $64,000, expiring on October 18
Potential payoff
Break-even point: $63,432
Maximum loss: If $BTC is below $63,000 at expiry on October 18, the loss is $433
Maximum profit: If $BTC is above $64,000 at expiry on October 18, the profit is $567
Advantages
Limited risk: The maximum loss is limited to the net option premium paid, providing better risk management.
Lower cost: Selling the higher strike call option can reduce the overall cost of the strategy.
Defined profit potential: The maximum profit is realized when the asset price reaches or exceeds the higher strike price at expiration.
Risks
Capped upside: Profits are limited, and if the asset price significantly exceeds the higher strike price, potential gains may be missed.
Time decay: Time decay affects both options, and if the asset price does not move as expected, it may work against you.
Break-even point: This strategy requires the asset price to exceed the break-even point to generate a profit.
This strategy is suitable for traders with a moderately bullish market outlook, expecting the asset to rise but not exceed a specific level. It provides a balance between risk management and profit potential, making it an attractive choice for traders seeking a more conservative bullish position.
