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IN A BITCOIN FRENZY; LONG BTC MINERS & SHORT BTCBitcoin ("BTC") prices are on a tear. It has rallied +57% since the start of September and is on course to clock fourth sequential month of rising prices. Four forces are driving a blistering rally. Euphoria linked to BTC spot ETF. Bullishness in all “Risk On” assets. Regulatory clarity. BTC halving. In a BTC rally, portfolio managers can gain exposure to the sector in multiple ways. These include a long position in (a) BTC, (b) BTC Futures, (c) Listed BTC miners’ stocks, (d) Crypto Exchanges, or (e) ETF on Listed BTC Miners (“Miners ETF”). Each of these presents its own benefits and challenges. This paper summarises the forces driving the bull run and analyses the price behaviour of Miners ETF (represented by Valkyrie Bitcoin Miners ETF “WGMI”) vis-a-vis BTC. Since June when market caught on to the excitement of a BTC Spot ETF, BTC prices have rallied relative to WGMI. In the near term, will the ETF catch up with the bull rally in BTC? Has the BTC price rally run ahead of itself? UNPACKING WGMI ETF WGMI is an actively managed ETF that invests in listed BTC miners. It is issued by Valkyrie Funds LLC. The ETF objective is to invest >80% of its net assets in firms that derive >50% of their revenue or profits from BTC mining operations and/or from providing specialized chips, hardware and software or other services supporting BTC mining. The Fund will not directly invest in BTC. Neither will it indirectly participate in BTC using derivatives or through investments in funds or trusts that hold BTC. Source: ETFDB and data last updated 7th/December 2023 WGMI was launched in Feb 2022, it has net assets of USD 33 million and an expense ratio of 75 basis points. In June, when regulatory approval discussions became louder, WGMI rallied relative to BTC. Net fund flows have been positive for much of the year with rising inflows since start of October. However, since mid-July, while BTC remained resilient, WGMI came off precipitously. WGMI price meltdown stopped in early Oct and has since started rising. Meanwhile, BTC prices have rallied sharply resulting in a WGMI underperforming BTC by 30%. BTC BULLS IN FULL FORCE Four forces are driving BTC frenzy. 1. BTC Spot ETF Euphoria ETF applications were delayed by the SEC and remain pending. Previously anticipated timeline of between 5th and 10th January 2024 remains the expected approval date. Source: James Seyffart 2. Risk-on Asset Bull Run When money flows, it flows everywhere. Equity markets have been on an upward trajectory over the past three months on Fed rate cut hopes. BTC is seen as the risk asset of choice rallying the most. 3. Regulatory Clarity Recently, Sam Bankman-Fried (SBF), former CEO of FTX, and Binance, the world’s largest crypto exchange were both prosecuted. SBF was convicted of fraud and jailed. Meanwhile, Binance was imposed USD 4.3 billion in penalties on criminal charges related to money laundering and breach of financial sanctions. In reaction to these developments, JP Morgan's Nikolais Panigirtzoglou said that "We see the prospect of settlement as positive as uncertainty around Binance itself would subside and its trading and BNB Smart Chain business would benefit. "For crypto investors the prospect of settlement would see the elimination of a potential systemic risk emanating from a hypothetical Binance collapse.", he added. 4. BTC Halving BTC derives value from its limited supply. Every four years, the number of BTCs minted as a mining reward, halves and will eventually halt, leading to a fixed supply. BTC halving occurs every 210,000 blocks. As the average block time is ~10 minutes this gives a ballpark range of four years. Next BTC halving is expected on 19th April 2024, with tiny likelihood that it could take place in March or May. HYPOTHETICAL TRADE SET UP BTC appreciation due to halving is well known but its effects on miners is counter intuitive. With halving, the block reward for mining BTC i.e. miner revenues are essentially slashed in half. Although BTC price appreciation helps offset to some degree, it may not be enough if elevated prices cannot be sustained. Macro conditions have shifted. Energy prices are lower positively impacting the miners. Miner margins are likely to be wider. Large miners are expanding their hash rate at record clip. This is supported by expansion of hash rate as well as consolidation. Given the frenzied euphoric run up in BTC prices, BTC price may have run ahead of itself. In order to protect long position in Bitcoin miners against downside moves in volatile cryptocurrency prices, investors can hedge a long position in WGMI with a short position in CME Micro BTC futures. This Relative Value trade captures the alpha from rising stock prices of miners, while remaining agnostic to the price action on BTC itself. This paper argues for a hypothetical long position in WGMI ETF hedged by a short position using CME Micro Bitcoin Futures expiring in January 2024 (MBTF2024). A long-short spread requires the notional of each trade leg to be identical. Each lot of Micro Bitcoin Futures provides exposure to 0.10 bitcoin equating to a notional value of USD 4,544. Given WGMI prices as of market close on 8th December was at USD 14.75 per ETF, 308 ETF units are required. The hypothetical relative value trade then comprises of 308 WGMI units of ETF hedged by one lot of short position in CME Micro Bitcoin Futures with the following hypothetical trade set up: • Entry: 0.03246% (USD 14.75 divided by USD 45,440) • Target: 0.045% • Stop Loss: 0.027% • Profit at Target: USD 1,755 • Loss at Stop: USD 676 • Reward/Risk: 2.6x Please note that the above hypothetical P&L doesn’t include transaction and capital costs. MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
CME:MBT1!
by mintdotfinance
Mastering the Bitcoin Boom: Diverse Investment PathsIn this idea, we will explore different ways to amplify gains in a Bitcoin Bul. We will look at potential advanced tactics to capture further returns. My assumption is that Bitcoin is already in a bull market; however, the concepts I will talk about here will be valuable regardless of when the bull market begins. Bitcoin will most likely outperform most crypto assets due to the regulatory uncertainty and the potential upcoming ETF, so we don't think it's worth holding most altcoins out there. Yet there are some exciting ways to bet on Bitcoin indirectly to try to capture further upside, including altcoins. To do that, we will first look at specific key parameters that can serve as clues as to what we should be looking for in the assets we want to bet on: A) The beneficiaries of ordinals and the usage of the Bitcoin BlockChain, B) Coins/Tokens with a lot of BTC on their Balance sheet, C) Companies with BTC on their Balance sheet, D) Platforms that give access to BTC trading, E) Companies waiting for their BTC to be returned. F) Those that will benefit from an ETF. 1) Bitcoin miners. If the Bitcoin blockchain sees high usage, fees will go up, and miners will profit massively. As BTC rallies, more and more people will want to use Ordinals and Inscriptions and look for new ways to use Bitcoin. Miners also have BTC on their balance sheets, so their value will appreciate even further. WGMI is an attractive ETF that someone could buy as a bet on Bitcoin Miners, which looks pretty bullish after a massive collapse in 2022. Most alt-layer 1 protocols are dead and aren't coming back. Currently, there aren't many Bitcoin Layer 2 protocols. The only ones are Stacks and Rootstock (STX and RIF), both looking decent vs BTC. b) Tezos, Lisk, and Eos have a ton of BTC on their balance sheet. Based on my calculations, their market caps are smaller than the value of the BTC they hold. If their teams decide to return some of that BTC to holders, the prices of those projects will skyrocket. All these projects that are in development for 5+ years but haven't gained any reactions. They are looking quite bearish, yet the lower their ratios vs BTC go, the more attractive they are as a speculative buy, as they could easily double or triple in value. c) Microstrategy's Market Cap is worth the same as all the BTC on its balance sheet. It's currently at a 500m loss from the purchases and has a ton of debt; however, if BTC rallies and Microstategy finds ways to build on Bitcoin, its stock price has no ceiling. It's like a leveraged Bitcoin play with no risk of being liquidated. d) Coinbase has seen its competition rekt. Bittrex gone. Binance US is out. Gemini is suffering and can't truly compete with Coinbase. Coinbase plans to expand abroad and even launch its Ethereum Layer 2 protocol. Most FUD around regulations has already been priced in, and any positive news will disproportionately affect the price. As the exchange will be used as the custody solution for Blackrock's ETF, it will directly benefit from the ETF, despite potentially fewer people trading Bitcoin on it. ARKK holds most of the stock's supply and is unlikely to sell soon. e) LEO - This is Bitfinex's exchange token. If and when the US gov will return to Bitfinex the BTC it got from the Bitfinex hack back in 2016, that BTC will be used to buy back LEO tokens. When the FBI caught the hackers in 2022, LEOBTC jumped 85% on the assumption that the coins would be given back. I believe that, eventually, these coins will be returned and that LEOBTC will trade near or even above its ATHs. From here, that means a 100% gain or more. f) GBTC - As mentioned several times in my previous ideas, I believe an ETF will be approved, or something else will occur that will close the current GBTC discount. GBTC is a Bitcoin Trust trading at a 35-40% discount to NAV. That means that if that GBTC starts trading to its actual NAV, it will go up 70-80% from here relative to Bitcoin.
INDEX:BTCUSDLong
by BitcoinMacro
We are Eventually Going to Make it Bitcoin MinersHOLDINGS: SMSN LI 80 86,080.00 TSM 711 53,723.16 NVDA 577 87,300.10 RIOT 26,791 121,363.23 AMD 1,146 86,351.10 ARBK 101,865 424,777.05 BITF 225,762 264,141.54 88,278 123,589.20 CIFR 98,267 149,365.84 CLSK 97,259 393,898.95 19,309 31,087.49 DGHI 89,753 94,240.65 DMGI CN 607,264 116,409.92 GREE 26,792 66,712.08 HIVE 77,495 250,308.85 HUT 58,605 80,874.90 INTC 2,394 88,554.06 IREN 38,126 125,815.80 MARA 12,540 70,851.00 MIGI 105,920 112,275.20 SATO CN 116,864 20,162.10 SDIG 72,314 125,826.36 27,681 38,753.40 Cash & Other 2,826 2,826.01 The Fund is an actively-managed exchange-traded fund (“ETF”) that will invest at least 80% of its net assets (plus borrowings for investment purposes) in securities of companies that derive at least 50% of their revenue or profits from bitcoin mining operations and/or from providing specialized chips, hardware and software or other services to companies engaged in bitcoin mining. The Fund will not directly invest in bitcoin, or indirectly through the use of derivatives or through investments in funds or trusts that hold bitcoin.
NASDAQ:WGMILong
by noam_chom