At the end of 2021, Bitcoin was trading close to $ 50,000 and is currently trading at $ 21,000. Cryptocurrencies have faced many challenges such as rising interest rates, recessions and tightening government regulations. Many governments try to increase taxes on cryptocurrencies, while others like China ban them altogether. Inverse ETFs, buying put options and shorting crypto funds can help you profit in the crypto bear market.
Use reverse ETFs
Unlike exchange traded funds, reverse exchange traded funds do not have underlying assets such as stocks or bonds but instead have options, futures and swap contracts on these stocks. So if you buy a reverse ETF on the S&P 500, you will benefit if the S&P 500 falls. Due to their derivatives-based structure, reverse ETFs lose value over time, making them more suitable for short-term trading.
The Canadian company Horizons ETF has launched the BetaPro Inverse Bitcoin ETF on the Toronto Stock Exchange (TSE: BITI.U). ProShares, the same company behind ProShares Bitcoin Strategy ETF (NYSEARCA: BITO), recently launched its own inverse ETF (NYSE: BITI).
These ETFs trade Bitcoin futures on the Chicago Mercantile Exchange (CME), where the standard ETFs buy long contracts and the reverse ETFs short contracts. BITI.U’s price is around $ 18, representing a gain of around 50 percent from the original price of $ 12.66 in April 2022.
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Buy Put Options on Bitcoin
A put option allows the buyer to sell a particular asset, such as a stock or cryptocurrency, at a specific price, called the strike price. The buyer of the put option pays the seller a fee, the premium, for having the right, but not the obligation, to sell an asset at the strike price.
For example, if you buy Bitcoin put options with a strike of $ 19,000 and a premium of $ 1,000, you pay $ 1,000 to lock in the put price of $ 19,000.
You earn on this trade if bitcoin falls below $ 19,000, with larger profits if the price falls more. The maximum profit on this trade would be the strike price minus the current bitcoin price and the premiums paid. You can use CME Group to find option prices and trading options on Bitcoin and other assets.
Short selling bitcoin assets
With traditional reverse exchange traded funds and put options, the most you can lose is your initial investment. However, if you want higher profit with higher risk, you should consider short selling.
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Short selling involves selling an asset, such as a stock or bitcoin, at a higher price and then buying it back at a lower price. If the price of the underlying asset rises sharply, you will suffer significant losses as you will have to buy it back at a higher price.
The biggest risk with short selling is that it involves a collateral, which depending on price increases can result in you owning more than you have invested. You can create a margin account through Binance to short bitcoin, or you can short other bitcoin-based assets like Grayscale Bitcoin Trust (OTCMKTS: GBTC).
Cryptocurrencies like Bitcoin and Ethereum are among the fastest growing asset classes in history. Just ten years ago, Bitcoin traded at around $ 10, while Ethereum traded at $ 130 in March 2020.
Since then, there have been massive price increases, but also staggering losses. Rising interest rates and rising government regulation are some of the main reasons for the current crypto bear market.
Still, reverse ETFs, put options and short selling can be profitable. Although these strategies offer a high profit potential, they also have higher risk, so they should be used with caution.
This post first appeared on Benzinga:
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