Trading firm QCP Capital has released a new report that analyzes the current situation on the cryptocurrency market and offers an interesting trading strategy. Let's take a closer look.
The Labor Market and the Reaction of Cryptocurrencies
According to a report from QCP Capital, the US labor market data for August came in below expectations. The number of new non-farm payrolls was 142,000, compared to the forecast of 165,000. The unemployment rate remained at 4.2%, in line with expectations and below the previous month's figure of 4.3%.
Initially, the market reacted positively, leading to a rise in risk assets. However, sentiment then changed dramatically as market participants began to revise expectations for the Fed's rate cut in September. While immediately after the report was published, the probability of a 50 basis point rate cut was estimated at 55%, by the next morning the market estimated the probability of a 25 basis point cut at 70%, and a 50 basis point cut at only 30%.
Fed rate change probability. Source: Fedwatch
Impact on the cryptocurrency market
The news, coupled with the continued decline in Nvidia (NVDA) stock, has had a negative impact on the crypto market. Bitcoin has dropped to $52,500, finding support at $54,000, while Ethereum has fallen to $2,150.
BTC/USD 1-day chart. Source: Bitstamp/TradingView
QCP Capital analysts note that spot Bitcoin ETFs have continued a streak of outflows that has now lasted for eight days in a row.
US Bitcoin ETF Flows. Source: Farside Investors
Options Market Behavior
Despite the sharp drop in prices, the options market remained relatively calm. According to QCP Capital, there was significant selling of put options during the session. Analysts also noted a decrease in volatility at the near end of the curve as the spot market consolidated ahead of the weekend.
Trading strategy from QCP Capital
In conditions of increased volatility and low yield of the basis, QCP Capital offers an interesting trading strategy - Fixed Coupon Convertible (FCC). Let's see how it works:
Strategy Summary: FCC is a financial instrument that allows an investor to receive a fixed coupon income, while having the ability to convert it into the underlying asset (in this case, Bitcoin) under certain conditions.
Parameters of the proposed strategy:
Maturity date: November 29, 2024
Coupon rate: 33% per annum if the price of Bitcoin remains above $50,000
Coupon payment frequency: weekly, starting September 13, 2024
Strike price: $45,000
Security level: $40,000
How does this work:
The investor receives a high fixed income (33% per annum) as long as the price of Bitcoin remains above $50,000.
If the price of Bitcoin is above $40,000 at the time of redemption, the investor gets his money back.
If the price of Bitcoin is below $40,000 at the time of redemption, the investor receives Bitcoins at a price of $45,000.
Advantages:
High fixed income in a volatile market.
Partial protection against the fall in the price of Bitcoin.
Potential for additional profit if Bitcoin rises above the strike price.
Risks:
If the price of Bitcoin falls below $40,000, the investor will receive Bitcoins at a price above the market price.
Lost profit when Bitcoin rises strongly above the strike price.
This strategy may be attractive to investors who expect moderate growth or stabilization of the Bitcoin price, but want to protect against a possible decline.
Retrospective analysis
It is worth noting that in the previous report from September 5, QCP Capital noted the growth of Bitcoin above $58,500 and Ethereum to $2,500 amid expectations of a Fed rate cut. However, the current situation shows how quickly market sentiment can change.
The cryptocurrency market continues to demonstrate high volatility, reacting to macroeconomic data and investor sentiment. In this environment, strategies like the one proposed by QCP Capital can provide investors with interesting opportunities to manage risks and generate income.#BinanceBlockchainWeek $BTC