Why I Like Bitcoin Volatility

Larry’s Note: In recent weeks, Chris Lowe – a fellow editor and financial analyst – and I have been sitting down for regular discussions on hot-button topics in the markets.

And this week was no different…

We touched on the latest surge in Bitcoin, and why that makes this asset exciting due to my Bitcoin skimming strategy…

We also looked at trading opportunities in commodities… why Bill Ackman is affecting the bond market… and what we can expect from the stock market as 2023 comes to a close.

As always, staying nimble remains vital in this uncertain market.

So catch up on our conversation below… and if there are any topics you’d like to see us cover in a future talk, send them to [email protected].

[Editor’s Note: Transcript has been lightly edited for clarity and brevity.]

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Chris Lowe: Larry, this week, you’ve got a new presentation all about a strategy to capture the profits from Bitcoin without owning Bitcoin directly. You call that Bitcoin skimming.

[Editor’s Note: If you missed Larry’s presentation on Wednesday, a replay is available for a short time… Be sure to tune in now to see how it all works before it goes offline.]

So why did you pay attention to Bitcoin in the first place? It’s quite an obscure asset for a lot of people.

Larry Benedict: Well, soon they’re going to list a new exchange-traded fund (ETF) on Bitcoin that is different than the ProShares Bitcoin Strategy ETF (BITO). It’s going to give more of the mainstream public the ability to put Bitcoin in their portfolio.

Chris Lowe: So there’s already a Bitcoin ETF called BITO, and that’s based on futures contracts for Bitcoin. So it’s a little bit less accurate in tracking the Bitcoin price.

But what’s coming onstream, maybe as soon as the beginning of 2024, is a spot Bitcoin ETF. It’ll hold Bitcoin and track the current price.

So why is it important that it’s a spot Bitcoin ETF and not a futures Bitcoin ETF?

Larry Benedict: I don’t have a problem with BITO. But it’s not being pushed by Goldman, Blackstone, BlackRock, etc. – the big ETF players in the space.

So now you’ll have an ETF that actually houses Bitcoin. One thing you have to understand, though, is that the spot ETF will hold a lot of Bitcoin, but they will hold a lot of Treasurys or cash as well. So you’ll get the true price moves, but you’re not going to get 100% of the juice.

It’s been interesting. Bitcoin is up over 15% over the past week. So it’s really in the press. It’s something that people should have exposure to in their portfolio, and we’re going to give that to you without touching any altcoins or Bitcoin itself.

Chris Lowe: Larry, I know you’re going to be targeting short-term moves, but are they up and down or just up? Can you profit as Bitcoin falls?

Larry Benedict: We profit both ways. It’s interesting that volatility usually ticks up in Bitcoin when it goes up, which is the opposite of the stock market.

Chris Lowe: A lot of people think Bitcoin volatility is a bad thing because Bitcoin has had huge moves down.

So can you just explain to me why, as a trader, you look for assets with high volatility, even though long-term investors tend to shy away from those assets?

Larry Benedict: Well, we’re opportunistic! When markets, like even Bitcoin, are going crazy up or crazy down, it creates potential buying and selling opportunities.

People don’t realize this, but the Bitcoin asset class is really not that large. It’s got a market cap similar to Apple – one stock on the stock exchange. So these moves create massive volatility because there aren’t a lot of holders.

But what I love about the product is just that – you have the opportunity in a very brief period of time to make 10%, 15%, 20%. So that’s why we really like it.

Chris Lowe: Great, Larry. So what else has been happening in the market that you’ve been noticing this week?

Larry Benedict: Well, a lot. Since the attack in Israel, there’s been a lot of volatility. Commodities were really, really hot. Oil rallied from $82 up to about $88–89.

Now gold and oil have come in a bit. So we’re seeing some opportunities. I would say commodities look a little bit oversold for a trade. Gold is still up about $80 from where it was trading before the attack, but it had been up to about $150.

So that could be a mean reversion pullback inside a bullish trend. [Editor’s Note: When a stock gets overstretched in either direction, it often snaps back the other way. We call this “mean reversion.”]

Chris Lowe: What about the bond market, Larry? We saw bond prices falling and yields going up in the Treasury market. Has that dissipated? Are you ready to bet on higher bond prices?

Larry Benedict: It’s funny. Bonds made a low in the 10-year Treasury. Then Bill Ackman – who’s a large hedge fund manager, not even really a bond trader – had a short bond position he said he covered. So the market caught a little bit of a bid.

I do like bonds to the long side. It’s a hard trade because there’s a ton of supply coming from the U.S. government. I was pressing the short side for a while there, but I would cover the shorts and look to get long on anything that looks decent.

Chris Lowe: Finally, Larry, what about stocks? We’re heading into the end of the year. What do you see happening?

Larry Benedict: Listen, I’m bearish about the market. But so far, markets have sort of stabilized.

I do not like the market. I think it’s going to take a leg lower. I think there’s external risk out there – but I thought it would be a little bit faster than this.

So we’re going to stay nimble. I’m surprised that the market closed below the 200-day moving average (MA), and then all of a sudden, bang, it’s up a percent and a half.

So you’ve just got to be careful. We’re “carefully bearish.” We’ll wait for a move down and then try to capitalize.

Chris Lowe: Okay, Larry, well we’ll leave it there.

Larry Benedict: Chris, I greatly appreciate it.