- In the latest report, a Grayscale researcher mentioned that Bitcoin covered call strategies are an effective way to create income in market uncertainty.
- Amid the positive economic data, Bitcoin has witnessed a small upward momentum, soaring above $65,000.
- BTC is struggling to sustain upward momentum due to choppy flows in ETFs and geopolitical tension.
On July 15, Grayscale, a leading asset management company, highlighted Bitcoin covered call strategies as an effective way for investors to generate income during the uncertainty in the cryptocurrency market.
Covered Calls Turn BTC Stagnation into Income
While Bitcoin is currently giving a sign of recovery, it is expected that the cryptocurrency will trade sideways before a full recovery. In such conditions, a covered call strategy can allow traders to earn impressive yields while ensuring some level of downside protection, according to Grayscale.
Zach Pandl, Grayscale Head of Research, stated in the official post, “Although we see some positive signs, we can’t be sure exactly how the latest Bitcoin (BTC) bear market will play out. If Bitcoin’s price has found a durable bottom but trades sideways before recovering, covered call strategies can offer a way to help generate income from Bitcoin’s volatility while managing exposure to spot prices. As a reminder, in a covered call strategy, an investor buys a spot position and then sells a call option against it, earning the premium.”
In a covered call strategy, a trader holds a spot Bitcoin position and, against it, the trader will sell call options. By doing this, the trader generates income from a premium.
In the official post, Grayscale shared a hypothetical example for end-2026, where a researcher assumed the spot price of Bitcoin at around $65,000 with 40% implied volatility. In this condition, traders will generate an annualized yield of approximately 22%. They will generate a return above the breakeven price of $58,500.
“The option premium provides income as well as downside protection, in exchange for ceding some upside if Bitcoin rallies sharply. If the spot price of Bitcoin falls below the breakeven price, the covered call strategy loses money, but less than an outright long (by an amount equal to the premium on the call),” stated in the post.
Grayscale has mentioned that real-world BTC covered call ETFs, such as its BTCC fund, use a rolling portfolio of call options to achieve similar results.
Bitcoin Surges to 3-Week High on Cooling Inflation Data
On July 15, Bitcoin gained an upward momentum after the latest economic data, which helped the cryptocurrency to soar above $65,000 for the first time in the last 3 weeks. On Wednesday, it soared as high as $65,467. However, the cryptocurrency failed to sustain above this level. At the time of writing this, BTC is trading at around $64,833 with a spike of 4.13% in the last 7 days, according to CoinMarketCap. The cryptocurrency holds a market capitalization of around $1.3 trillion.
The rally was witnessed after weaker-than-expected data related to U.S. inflation came out, which reduced concerns about the immediate increase in the Federal Reserve rate.
According to the latest report, June’s Consumer Price Index (CPI) dropped by 0.4% from the previous month, which is the sharpest decline since April 2020. This number has brought annual inflation down to 3.5%. This is way lower than many analysts have predicted.
Apart from this, the Producer Price Index (PPI) also faced a drop, falling by 0.3% on a monthly basis.
Despite small gains in the last few days, Bitcoin is still struggling to create a breakout with strong upward momentum. The reason behind this is the fluctuating demand for BTC ETFs among institutional investors. On July 14, U.S. spot BTC ETFs recorded net inflows of approximately $181 million, according to Farside. However, on July 13, it recorded $424.7 million in outflow.
Year-to-date, U.S. spot BTC ETFs have seen cumulative net inflows soaring above $51 billion, with more than 636,000 BTC locked in ETFs.
The overall crypto market is still facing extreme volatility due to growing global tension in the Middle East due to the U.S.-Iran war. This week, Iran launched fresh missile and drone attacks on Middle East countries like the UAE, Kuwait, Bahrain, and Oman, in response to the U.S.’s attack. This attack has once again created turmoil in the financial world as it could disrupt the global energy supply.
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