The leader in cryptocurrency has been pushed out of first place. Ethereum (ETH) has surged more than 20% since May 20, fueled by the much-hyped launch of an exchange-traded fund (ETF) for Ethereum in the United States. In comparison, Bitcoin (BTC)’s performance appears sluggish. There are still plenty of opportunities to bet on the kings of cryptocurrency. But not everything is worth accepting.
If you are an avid Bitcoin maxi, stop here. You already know that the US dollar is on the verge of collapse and that BTC $200,000 is just around the corner. For everyone else, here are three practical tips to protect your cryptocurrency profits after this bull market runs out of steam.
Be aware that the Ether ETF may not be bullish on Bitcoin.
The approval of the Ether ETF is bullish for cryptocurrencies as a whole, but not necessarily for BTC. Especially not in the short term. As Ethereum dominates the market narrative in the coming months, we expect BTC to retest its previous price support levels.
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Rather than betting big, consider playing market neutral. One of the most profitable strategies this year was the relatively simple carry trade between the BTC spot market and perpetual futures market. As Bitcoin bulls doubled down on long positions, funding rates on futures exchanges surged past 20%. The naysayers have been cashing out by getting paid for BTC perpetual contracts while offsetting their risk in the spot market.
For more sophisticated trading, investment research firm 10x Research swears by what it calls “covered strangulation.” This moderately optimistic bet against extreme volatility involves holding spot BTC while selling out-of-the-money call and put options expiring in December at the $100,000 and $50,000 levels, respectively. According to 10x Research, this strategy provides “a 17% downside cushion or a 17% yield boost, depending on where BTC closes in December.”
Skip self-custody – put something in an ETF
Bitcoin’s glory as a long-distance inflation hedge will matter little if wallets are completely drained by fraud and abuse. So the self-custody that Maxis reveres isn’t suitable for all but tech-savvy holders. To date, more than $27 billion has been lost due to exploits, which is more than 1% of the total market capitalization of cryptocurrencies. The hit rate for retail holders is much higher.
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The safest option is to buy BTC futures on an established platform such as the Chicago Mercantile Exchange (CME). Cash-settled futures are immune to abuse risks, and bite-sized BTC micro-futures closely mirror spot positions. Nonetheless, rolling expired contracts on a regular basis significantly increases complexity and cost.
Like it or not, Bitcoin spot ETFs are actually the best option for most holders. BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity Wise Origin Bitcoin Fund (FBTC) strike an attractive balance between security and costs with carefully vetted custodians and expense ratios of 0.25%. However, keep in mind that bid-ask spreads and trading premiums delay returns, and custodians’ partial reliance on hot wallets creates meaningful abuse risk.
Consider the booming copper industry.
The best Bitcoin plays may not involve Bitcoin at all. Forget digital gold. For a true long-term inflation hedge, consider copper (yes, the metal). The correlation between copper and Bitcoin surpasses virtually all other commodities. It has strong use cases (e.g. wire and penny production), has been with us since the Neolithic Age, and is unlikely to be replaced by competing smart contract networks.
On the other hand, the correlation between Bitcoin and technology stocks is steadily decreasing. Gone are the days of using BTC as leveraged bets on Nasdaq. The most liquid and capital-efficient copper futures on the market beat BTC as a serious inflation hedge while delivering superior risk-adjusted returns.
Bitcoin may have been the first mover in the cryptocurrency space, but importantly, it was the last mover. Following the approval of the Ether ETF, institutional adoption of Ethereum is expected to begin. It is a good time for BTC maxis to start thinking beyond Bitcoin.
alex o’donnell He is the founder and CEO of Umami Labs. Before joining Umami Labs, he worked as a financial journalist at Reuters for seven years, covering M&A and IPOs.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.