Bitcoin Decline is Coming Again? Lock in 34K Profit with Bear Spread Options

In the past 24 hours, the cryptocurrency market has experienced significant fluctuations. Market data shows that $Bitcoin(BTC.USD.CC)$ has continued to fall from over $60,000, once dropping below the $57,000 mark, to as low as $56,750.

Other cryptocurrencies are in a similar situation$Ethereum(ETH.USD.CC)$ once fell to nearly $3,000 and, after a slight rebound, is now rapidly declining again; Litecoin has continued to fall, with a drop exceeding 8%; Ethereum Classic has fallen by more than 7%.

Market analysis suggests that the increase in the supply of cryptocurrencies and the latest actions of Binance have impacted the current cryptocurrency market trends. It is reported that Binance will cease trading services for the following six currency pairs: BTC/AEUR, ETH/AEUR, AI/TUSD, CHR/BNB, GAS/FDUSD, LQTY/FDUSD, and the revision will take effect on July 5th.

The company did not disclose the specific reasons for the delisting but only reminded that it would regularly review all listed spot trading pairs and remove some trading pairs in cases of poor liquidity or other factors.

At the same time, "mining" companies have also been selling Bitcoin on a large scale recently. The amount of Bitcoin held by "miners" has dropped to the lowest level in 14 years. "Miners" have sold over $2 billion worth of Bitcoin in June, the highest amount in more than a year.

Is the cryptocurrency market possibly facing another bear market?

Looking back at the price change of cryptocurrencies, Bitcoin is a highly cyclical financial asset.

• In December 2017, Bitcoin reached its then-historic high of $19,640. At that time, Bitcoin began to emerge and an increasing number of people started to pay attention to the investment in cryptocurrencies like Bitcoin. Then Bitcoin began to fall all the way, dropping to $3,185 by December 2018, with a decline of over 80%.

• In 2021, Bitcoin rebounded and continued to rise, surpassing $60,000 for the first time in March 2021, setting a new historical high and exciting investors. However, by July 2021, Bitcoin fell below $30,000, with a drop of 50%.

• In November 2021, Bitcoin reached a high of $68,789.63, astonishing the market and setting a new record price. This once again filled investors with confidence and optimism for the future of cryptocurrencies, ushering in a bull market. However, unexpectedly, the market trend reversed and by June 2022, the price had plummeted to below $18,000, a drop of over 74%, also breaking the psychological defense line of $20,000.

If this decline is the beginning of another bear market, then shorting Bitcoin-related ETFs or companies might be the right time.

Investors can attempt limited-risk shorting strategies at this time, such as the bear call spread strategy.

Bear Call Spread Strategy

The bear call spread is an options trading strategy where the trader expects the price of the underlying asset to fall in the near future and wishes to short the asset while keeping the trade within a certain risk range.

Specifically, a bear call spread is achieved by purchasing a call option at a specific strike price while simultaneously selling the same number of call options with a lower strike price but with the same expiration date.

Bear Call Spread Shorting $Coinbase Global, Inc.(COIN)$ Example

Taking Coinbase as an example, the current price of $Coinbase Global, Inc.(COIN)$ is $224.94. Suppose an investor expects it to fall to around $175 by August 9th; the investor can use a bear spread strategy to short at this time.

Step 1: Sell a call option expiring on August 9th with a strike price of $175, earning a premium of $5,273.

Step 2: Buy a call option with the same expiration date and strike price of 230, and the bear spread is established. This time, the premium paid is $1,793.

After the strategy is established, the premium obtained is $3,480.

• At the time of expiration settlement, when the stock price is below the short call option strike price of $175, the strategy achieves a maximum profit of $3,480.

• Breakeven, when the Coin stock price is $210.85, the strategy reaches the breakeven point.

• When the stock price is above the long call option strike price of $230, the strategy reaches a maximum loss of $1,915.

The main advantage of the bear call spread is that it reduces the risk of shorting transactions (buying a call option at a higher strike price helps offset the risk of selling a call option at a lower strike price). Because shorting a stock theoretically has unlimited risk if the stock goes higher, the risk of shorting using a bear call spread is much lower than shorting the stock directly.