(~USDBTC) has been in a massive downward spiral after its November 2021 all-time high. The leading cryptocurrency is currently down over 70% since then.
According to a recent survey, the majority of investors believe that there are more downsides for BTC in the future.
Investors believe that Bitcoin is likely to reach $10,000 before reaching $30,000, an ominous prediction. Survey from MLIV.
The last time Bitcoin traded at $10,000 was almost two years ago, in September 2020.
With the success of Bitcoin bears throughout 2022, you may be wondering how you can join the bearish bets.
Three Ways to Short Bitcoin
There are a few different ways to bet against Bitcoin, each with their pros and cons. Some Bitcoin bears use exchanges like FTXLedger to buy direct put options on the cryptocurrency itself. However, this direct exposure comes at a price: these types of exchanges suffer from extremely low liquidity, which makes order execution difficult and often expensive.
Another strategy to short crypto is to use margined exchanges like KuCoin to take out high-leverage short positions in Bitcoin — this is a valid option, but very risky. An upward surge in an asset class known for its high volatility could lead to the liquidation of your entire portfolio, a fate to which not even institutional investors are immune.
While these short Bitcoin strategies they can be effective, there is a better way. In our search for bearish Bitcoin strategies, we should look no further than institutional option trading.
How Institutions and Hedge Funds Use Options to Short Bitcoin
Institutional traders have a clear weapon of choice that they use when they want to be bearish on Bitcoin: putting options on ProShares’ relatively new Bitcoin strategy ETF, BITO.
The ProShares BITO Bitcoin Futures ETF began trading just a month before Bitcoin’s November all-time high. Since it debuted at $41.23, it’s down 69.2% — much to the bears satisfaction.
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Let’s take a look at how a Bitcoin bear He actively managed his BITO put options to rack up huge profits. in the ETF, as it fell more than 50%.
Source: Market Rebellion Unusual Options Activity Service
Starting in February, with (BITO) – Get ProShares Bitcoin Strategy ETF Report Trading at $26.65, this trader spent $1.57 million betting that BITO would drop below $25. It did. In two weeks, the merchant rolled those March $25 puts to April $21 puts, earning a profit of over 50% on the original puts and raising his bet to a total cost of $2.912M.
vocabulary check
Roll: Sell an option and simultaneously buy another option on the same capital with the same directional bias. It can be at a lower strike (down), at a higher strike (up), at a later expiration (unwind), or at a closer expiration (inward drift).
A month later, the newly executed trade was not going in his favor: BITO had risen to $25.72 from $23.73. But instead of cutting off the trade, this trader rolled up. They used the sale of thousands of put options due in April to fund a purchase of 9,000 $23 put options due in May, ringing the record on a trade now worth $1.575 million.
This bold move would set the course for a series of gains.
Ready to start trading? Try Unusual Option Essential Activity. Learn how you can follow the “smart money” with a new UOA trade idea every week, including technical levels so you know where to enter and exit.
Each arrow indicates a sale operation in BITO. Source: TradingView, Market Rebellion
The Bitcoin bearish trader would go on to throw those options three more times in May as the BITO price fell over 20%, taking profits while maintaining bearish exposure to trade through the early summer months.
They are sold out? Absolutely not. In June, they purchased a new batch of BITO options for over $318,000, valued at $0.42-$0.43 each. Today (one day before expiration), those put options traded as high as $2.89, nearly 7x the trade amount, valuing the original $318K bet at a high of $2.1675M. This value does not even take into account any of the previous Bitcoin bear option trades. Despite all the profits they have now accumulated and the expiry of June’s ITM means that yet they’re not done: get back to participating in new BITO posts once again on July 11th.
So if you’re wondering if it’s too late to get into Bitcoin’s bearish frenzy, it seems the “smart money” doesn’t think so.
The bottom line: How can you make bearish bets on Bitcoin?
Although there are multiple methods to gain short exposure on Bitcoin, the smartest and most popular method is to use long put options on BITO. And if you’re looking to add an extra edge to your trade, consider following institutional trades using Market Rebellion’s unusual options activity service. By looking at institutional options order flow, you could mimic the trading and risk management style of giant traders like the Bitcoin bear above.
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