My Crypto Positioning For Maximum Juice
Instruments I am using for the Bitcoin Halving Trade
I wrote about Bitcoin ~2.5 months ago as the price was flirting with $32K and it looked like it would break out above that:
Bitcoin’s chart looks pretty good and if it breaks out above $32K, we could race up to $45K. And given the setup with halving expected in April next year and the fact that we are coming out of a 2 year long bear market, I think $BTC is due for a bounce.
Source: WealthWise
While we did not breakout above $32K, Bitcoin has held support around $25K which is the Feb 2023 High, June 2023 Bottom and it bounced off $25K last week too. Last month’s chart is the definition of support.
Since that article, we heard about Greyscale’s win against the SEC over the Bitcoin Spot ETF. As we wait for the Spot Bitcoin ETFs to come through, this is a great time to continue to accumulate $BTC and position for the crypto resurgence.
Having said that, if Bitcoin does not hold $25K, it could test $20K.
However, based on what I have heard from experts, I expect a resolution to this issue to come soon, some developments might happen before the end of the year. Spot Bitcoin ETF could launch as soon as January 2024. A Spot Bitcoin ETF is expected to open the flood gates for institutional investors and retirement accounts where one will have the option to buy a Blackrock Bitcoin ETF right from their brokerage.
In this article, I will be sharing some strategies I am using to get more juice out of the Bitcoin trade over the next year or so.
My goal is to try to get more exposure to Bitcoin both for my core position as well as for a trade.
Over the years, I have learned that having a trading position alongside your core position helps you book profits when you see unusual/unsustainable surge in prices, and it helps prevent FOMO which helps you keep your core position untouched.
Core:
My core position in Bitcoin is in $BTC which I hold in cold storage. In the past I have traded in and out of Bitcoin owing to which I was left under positioned in Bitcoin when it rallied in 2020-21.
Now I don’t touch my core position, I will add to it from time to time when there is a good opportunity, but not sell.
I intend to add to my $BTC position if it slips closer to $20K. I made two large buys in the last 3 months, both around $25K.
Trading Position:
I am evaluating BITO 0.00%↑ BITX 0.00%↑ MARA 0.00%↑ & RIOT 0.00%↑ to get extra juice out of my crypto trade going into 2024.
Let’s jump in.
$BITO
I started writing this article a month ago and came into the article with the assumption that $BITO by ProShares might deliver more alpha than $BTC given that we are in a sideways market and that BITO 0.00%↑ pays a dividend, which should help me pick up for units in a declining/sideways market. But when I got into the details, I realized that $BITO has underperformed $BTC in the last 1 year.
In the last 6 months, $BTC has returned 5.87% while the total return of $BITO is 4.12%.
In the last year, $BTC has returned 31.83% while the total return of $BITO is 31.2%.
Please take note that $BITO’s returns include dividends which are monthly taxable events. So technically, your total returns on BITO 0.00%↑ would be lower.
Also important to note is that these dividends are not guaranteed:
The dividend amount will change each month and may change significantly, or it may go to zero if the subsidiary has had significant recent losses and/or previously paid dividends have already covered the expected required dividend.
The approach described below to calculate the monthly dividend amounts is subject to change at any time with no notice and should not be relied on as a definitive indicator of what, if any, dividends will occur in these funds.
Source: ProShares
This played out in the most recent dividend payout.
In case you are wondering where this dividend is coming from. Here is where:
Each of the funds gets exposure to futures contracts by investing in a wholly-owned subsidiary organized under the laws of the Cayman Islands. The net income of the subsidiary, which includes mark-to-market gains on the futures contracts, is recognized by the fund, for tax purposes, which is then passed through to shareholders as a dividend.
Source: ProShares
So $BITO, no!
$BITX
$BITX is a 2x Bitcoin Strategy ETF which gives 2x leveraged exposure to Bitcoin. While It’s not recommended to hold leveraged tickers overnight owing to daily rebalancing (explained here), I have found them to be of immense value. I find them safer than trading options, since there is technically no expiry date on them and I have so far never booked a loss on a leveraged ticker (primarily because I don’t hold on to them for too long).
Please take note that this is an extremely volatile ETF. It also moves with the same viciousness to the downside. Over the last month, when $BTC is down 11.35%, $BITX is down 24.43% as of Aug 27th. In the most recent 30 days the spread has been less drastic.
I have been adding to my $BITX position and I am going to continue to add to it. I have limit buys in place which will trigger if and as $BTC falls. On top of that, I will continue to monitor and add to it manually. I am currently at 60% to target on $BITX and hoping to get to 100% in the next month or so.
I am also trying to buy a small bit of $BITX in my Roth IRA too given I expect short term returns from this trade and Roth IRA returns are tax free.
I also have $BITX leap calls expiring in Jan 2025.
I will start liquidating BITX 0.00%↑ as soon as $BTC hits $45K and will continue to liquidate if and as it climbs higher. I’ll start by selling the options contracts in my brokerage & stocks from my Roth IRA owing to tax free returns and then after I have exhausted that, I will start selling the stocks I have in my brokerage account.
$RIOT & $MARA:
In my quest for more juice, I landed upon $RIOT & $MARA.
I, however, cannot take credit for this idea as I did not cook it up myself. I got this idea from J.C. Parets from All Star Charts on their free YouTube Channel. They also mentioned $MSTR a ton but I've stuck to $MARA and $RIOT for now.
MSTR was up 60% from mid-June to mid-July 2023, $MARA & $RIOT were up 100% in the same time period. $BITX started trading at the end of June.
I already had equity positions in $MARA & $RIOT which should both be eligible for capital gains by now, given they were purchased almost a year ago.
I also have both $MARA & $RIOT leap calls expiring Jan 2025. Just like with $BITX, I intend to start liquidating options first, followed by stocks as soon as $BTC hits $45.
I am more skeptical of holding Bitcoin miners than I am holding $BTC or $BTC derivatives, given that $BTC halving is detrimental to the miners business as it literally reduces their output and reduces their efficiency by half. However, given that this halving should also boost $BTC prices, the existing $BTC these miners hold will go up in value which should take up the share price because of stronger balance sheets.
However, if the crypto boom and bust cycle continues, then in the next crypto winter, $BTC prices will need to remain high for some of these miners to remain profitable. I therefore, want to get rid of my miner position sooner than I do for my $BITX position. Both are trades.
Conclusion:
Core:
Holding $BTC. I hold mine in cold storage on Ledger.
Trade:
Using $BITX equity and options to trade is better than holding $BITO.
$MARA & $RIOT Equities and Leap calls are some of the most leveraged plays on Bitcoin and can deliver maximum juice in case of a $BTC rally.
Borrowed Conviction Rarely Works
Past performance is no guarantee of future results.
The ideas discussed in this article should not be constituted as investment advice.
I reserve the right to change my mind if the facts change.
Disclosure: We own positions in some/all of the tickers mentioned in this article.
