Bitcoin price has seen a healthy upward tick toward the $13,000 mark in the past few days. At the start of October, Bitcoin (BTC) was in the sub-$11,000 region, and from there, constant rises took the price to the $13,000 mark on Oct. 21 for the first time this year.
When comparing the BTC and CVX charts, it’s visible that the BTC price has increased dramatically on October 22nd due to various market events, mainly the announcement of PayPal on their intention to allow Crypto payments from their platform. As a result, the market volatility (which is in fact the “fear” in the market from a recorrection) has increased significantly, as reflected in CVX graph, however after a certain period of time, market volatility has settled and CVX has returned to normal levels.
A BTC trader that has gained profits in this spike (for example: bought at $11k and now is sitting at $13k), and is afraid of price correction, could buy a long position in CVX (at around 65) in order to mitigate risk.
The possible scenarios in this case are as follows:
- In case BTC will continue the rapid upwards trend, the trader will gain both from CVX and from holding the BTC
- In case BTC will correct itself and sharply decrease in price, the trader will gain from CVX and lose on BTC. The CVX gains will offset some, if not all, the losses from BTC
- In case BTC will move sideways and remain in the same price, then the trader will lose some on CVX losses while keeping the BTC profits, marking the loss as a hedge
Liquidity providers strategy:
An additional CVX strategy would be to become a liquidity provider. Liquidity providers on CVX play the role of the counterpart for every trade made on the platform. If a trader has bought a LONG or SHORT on CVX and lost that trade, the liquidity providers are the ones to recoup the lost trade, and vice versa.
In our case, a liquidity provider could have gained significant profits from the decrease in volatility as described in the third scenario — since the liquidity provider always stays in a short position, so, when CVX decreases, the liquidity provider wins, and vice versa.
To summarize, BTC’s rapid price increase creates opportunities for traders to keep and grow their profits, even if BTC price decreases or increases sharply. Liquidity providers may gain profit if they foresee that volatility will decrease and BTC will go sideways. CVX creates new opportunities for everyone.
For more information and examples on CVX , please refer to the CVX announcement.