Our Bitcoin Greed & Fear Index Turns Bullish, This Is Our Favorite Trade

1-10) Event risk is high this week, with $800m of PYTH (-38% last 30 days) supply becoming unlocked (May 20) and another $340m from AVAX (May 21). NVIDIA’s Q1 2024 earnings report will be released on May 22, and the final deadline for VanEck’s spot ETF application is May 23. According to betting markets, there is only a 7% chance for an ETF approval. Bitcoin is expected to move up or down by +/-4% by the end of this week.

2-10) Bitcoin’s price action has significantly improved since last week. Prices have rebounded towards their late April resistance zone (67,500), surpassing the early May highs (64,000). A breakthrough above 67,500 could potentially lead to new all-time highs, a scenario that our Bitcoin ETF model predicts (refer to the report from Saturday).

3-10) Our 68,300 ‘line-in-the-sand’ is back in focus, as a move above could technically set off a strong rally. Bitcoin trades bullish, with 67,500 being the next breakthrough level. Selling pressure has been held back, and Treasury Secretary Yellen, Fed Chair Powell, and Blackrock strongly intervened verbally. However, the market structure and fundamentals remain challenging.

4-10) This bull market is still searching for a significant narrative and a theme that can ignite investor interest. Volumes are low, and interest in altcoins is nearly non-existent when looking at the altcoin epicenter – South Korea. Onchain data is rate weak, too.

5-10) However, Bitcoin's downside appears limited. Inflation data are unlikely to move materially higher, and Fed Chair Powell categorically rules out rate hikes. This will likely cause the Bitcoin ETF inflows from long-only investors to resume, while the multi-strategy funds will likely remain on the sidelines due to low funding rates, a byproduct of weak retail trading volumes.

6-10) Still, this could cause a gradual increase in Bitcoin prices instead of the explosive rally we saw earlier in the year. A more robust (US) stock market and the support from the US Presidential election cycle could support this bullish narrative.

7-10) Our Greed Fear Index (grey line) briefly traded below 10%, a level associated with tactical lows in this bull market. More importantly, the moving average (black line) is rebounding, which lasts for weeks or even months. Hence, a prolonged rally might occur.

Our Bitcoin Greed Fear Index (grey hit the low, purple rebounding)

8-10) The derivatives markets indicate that selling a put for the December 2024 expiry with a strike price of 50,000 could yield 6% into year-end. This appears to be a relatively low-risk strategy as we not only doubt Bitcoin would drop below 50,000, but we also think that Bitcoin’s volatility will likely materially decline over the next few weeks and months.

9-10) Selling a December 2024 call with a strike price of 100,000—which is +50% above the current BTC price—could yield another 11% for the next 6-7 months. Hence, combining a long Bitcoin position and selling a covered call with the strike price 100,000 still provides plenty of upside. Adding a short put with a strike price of 50,000 adds another 6%—or +17 %—while still having upside exposure up to 100,000.

10-10) Our favorite strategy is to buy Bitcoin Spot, Sell 100,000 strike call, and Sell 50,000 strike put for the December 2024 expiry. Selling the call could yield 11%, and selling the put could yield 6%. Hence, this strategy provides us with either a 17% downside buffer or 17% more yield, depending on where BTC closes in December plus we would capture all the upside (or downside) for Bitcoin.

BTC Realized Volatility Appears Too High - Sell puts and Sell calls