The CEO of Binance, Changpeng Zhao (CZ), has said there will be “very high volatility” in the crypto market and that he doesn’t believe any coin is a buy at current prices. Despite this, CZ believes we could see $1 trillion worth of crypto exchanged by 2024. Here’s how to trade it
“Binance CEO expects ‘very high volatility’ in crypto. Here’s how to trade it” is a recent article that discusses the current state of cryptocurrency trading, and what traders should do to protect themselves during this time of high volatility. Read more in detail here: does crypto trade 24/7.
Traders and investors utilize volatility as a complicated statistical metric. When the phrase is used, those who are unfamiliar with it are prone to associate analysts with some type of privileged “status.” However, as Binance exchange founder Changpeng Zhao recently said, the majority of the time, individuals have no idea what volatility entails.
Over the next six months, expect a lot of volatility in #crypto.
October 21, 2021 — CZ Binance (@cz binance)
This isn’t the first time CZ has assumed the wrong thing about the subject. In May, CZ said that volatility was “not unique to crypto,” despite the fact that, with the exception of Tesla, no S&P 500 stock surpassed Bitcoin’s (BTC) 70 percent annual volatility, according to various sources, including Cointelegraph.
So, what is volatility, exactly?
Realized (or historical) volatility gauges the size of daily price variations, with more volatility indicating that the price may swing dramatically in either direction over time.
Lower volatility periods are associated with a greater chance of explosive movements, which may seem paradoxical. This is due in part to the fact that realized volatility is a backward-looking measure. Traders tend to over-leverage during tranquil times, resulting in higher liquidations amid price swings.
Bitcoin’s realized volatility during the last 50 days. TradingView is the source of this information.
Over the last two years, the average 50-day volatility has been 74 percent. The indicator has a history of speeding up as it rises beyond 80%, but there is no certainty that this will happen this time. A counter-argument to this concept may be found in data from February and April 2017.
Because it only measures absolute daily fluctuations, volatility does not distinguish between bull and bear markets. Furthermore, a period of low volatility by itself is not indicative of an impending sell-off.
What if CZ has information that we don’t?
Given CZ’s well-connected status as the creator of the world’s biggest crypto exchange, there’s always the potential that he has some inside knowledge, but if someone was so certain about an approaching event, the odds are they’d know whether the effect is favorable or bad. Expecting “strong volatility” in the “next couple of months,” yet again, does not imply confidence in any direction.
Let’s say he was accurate, and crypto volatility is set to hit 100% for the first time. This situation is well-suited to an options strategy that enables investors to benefit from a significant move in either way.
The reverse (short) iron butterfly is an options trading method with a low risk and low reward potential. It’s vital to note that options have an expiration date, so the price rise must occur within that time frame.
Estimated profit and loss. Deribit Position Builder is the source of this information.
The aforementioned values were obtained on October 25th, when Bitcoin was trading about $63,000. All of the alternatives are for the December 31 expiration date, however this method may easily be applied for an other time period.
Selling 1.23 BTC contracts of $52,000 put options while concurrently selling 0.92 call options with a $80,000 strike is the advised bullish approach. To complete the transaction, purchase 1.15 contracts of $64,000 call options and 1.0 contracts of $64,000 put options.
While the buyer has the right to purchase an asset via this call option, the contract seller has a (possible) negative exposure. To be totally protected from market fluctuations, an investor must deposit 0.174 BTC (approximately $11,000), which is the greatest loss possible.
Because the risk-to-reward ratio is shaky, the trader must be convinced.
For this investor to earn, Bitcoin must be below $54,400 on December 31, 2021 (down 14%) or above $75,500 on December 31, 2021 (up 14%). (up 19 percent ). Because the highest payment is 0.056 BTC and the possible loss is approximately 3 times that amount, the theoretical risk-reward is not favorable.
Nonetheless, if a trader is certain that volatility is on the way, a 20% move from $63,000 in 66 days is possible. Traders should keep in mind that the investor has the opportunity to reverse the transaction before the options expire, ideally shortly after a significant Bitcoin price change. All that is required is to buy back the two options that were previously sold and sell the other two that were previously purchased.
The author’s thoughts and opinions are purely his or her own and do not necessarily represent those of Cointelegraph. Every investing and trading decision has some level of risk. When making a choice, you should do your own research.
Related Tags
- bitcoin volatility
- future of cryptocurrency 2021
- where is binance located
