Volatility has reached unprecedented levels, creating attractive opportunities for investors. Hindsight biases may have hindered Bitcoin payment applications. How will the upcoming licensing system in Hong Kong impact the crypto market? Decreased volatility creates opportunities.
Decreased Volatility Creates Opportunities
Measuring Bitcoin's volatility through the one-month at-the-money implied volatility (1m ATM IV), it continues to decline, reaching levels rarely seen in the past few years. We noticed this a few weeks ago, but since the subsiding of the regional banking crisis weeks ago, Bitcoin's price has remained low, and the trend of decreasing volatility persists. Last week, this indicator hit a new low for 1m ATM IV, observed since March 2019.
As Bitcoin's price remains stagnant, especially while other assets like tech stocks continue to rise, traders appear increasingly anxious, with recent news articles emphasizing bearish option data and technical analysis. Although short-term market volatility is hard to predict, it is evident that in the current market state of historically low volatility, investors can still take advantage of this low volatility to make some moves, even if they don't know which direction the market will break.
A straddle option strategy, which involves simultaneously buying both call and put options, can potentially yield profits if the underlying price fluctuates significantly in either direction. However, if Bitcoin's volatility remains unchanged or continues to decline, investment premiums will erode, and the returns may be lower than the option fees. Considering the current depressed (cheap) level of implied volatility and several catalysts that could drive Bitcoin higher or lower, including debt ceiling negotiations, regulatory changes, and compensation of Mt. Gox tokens, going long on straddle options might be profitable for some investors. Additionally, with declining market liquidity (according to Kaiko data, BTC liquidity on U.S. exchanges has decreased by approximately 50% since the beginning of the year, WEEX note), we believe there are several benefits to owning volatility at this time.
WEEX Note: This article was published in Singapore time on the 27th. In fact, according to WEEX VEX exchange data, Bitcoin broke through the consolidation range of the past two weeks and the $28,000 integer mark starting on the 29th, reaching a high of $28,431, with a daily maximum increase of approximately 4.25%.
Is China Ready to Embrace Cryptocurrencies Again?
Last week, it was reported that the Securities and Futures Commission (SFC) in Hong Kong will begin accepting license applications from Virtual Asset Service Providers (VASPs), aiming to provide services to retail investors. Considering China's regulatory history with cryptocurrencies, such as restricting the crypto industry in 2013, the ICO ban in 2017, and the complete ban on trading and mining in 2021, we find this policy shift in China's Hong Kong region interesting (acknowledging that there are certain differences in policies between mainland China and Hong Kong).
In fact, the VASP framework in China's Hong Kong region has been implemented for several years, and now with the licensing scheme set to be implemented next week, it seems to be ahead of many other jurisdictions, including the United States. It is currently unclear how actions in the Hong Kong region will impact the crypto market, but both the Hong Kong region and mainland China have been significant factors in Bitcoin's price movement in the past, making their regulatory attitude changes worth monitoring.
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