Fed signals a sharp rate hike in March due to inflation — Here’s how Bitcoin traders can prepare
2 min read
Like it or not, for crypto investors, the U.S. Federal Reserve policy on interest rate hikes and high inflation is the single most relevant measure for gauging demand for risk assets. By increasing the cost of capital, the Fed boosts the profitability of fixed-income instruments, but this is detrimental to the stock market, real estate, commodities and cryptocurrencies.
One positive aspect of the Fed’s meetings is that they are scheduled well in advance, so Bitcoin (
To initiate the trade, the investor must buy 6.2 contracts of the $23,000 put (sell) option. Then, the buyer must sell 2.1 contracts of the $25,000 call option and another 2.2 contracts of the $27,000 call option. Next, the investor should sell 3.5 contracts of the $25,000 put (sell) option combined with 2 contracts of the $27,000 put option.
As a final step, the trader must purchase 3.9 contracts of the $29,000 call option to limit losses above the level.
This strategy yields a gain if Bitcoin trades between $23,800 and $29,000 on March 31. Net profits peak at 0.276 BTC ($6,558 at current prices) between $25,000 and $27,000, but remain above 0.135 BTC ($3,297 at current prices) if Bitcoin trades in the $24,400 and $27,950 range.
The investment required to open this skewed iron condor strategy is the maximum loss, hence 0.217 BTC or $5,156, which will happen if Bitcoin trades below $23,000 on March 31. The benefit of this strategy is the wide profit target area, yielding a better risk-to-reward outcome than leveraged futures trading, especially considering the limited downside.
The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
