Yo-Yo Squeeze Or Core Meltdown, Either Way Buy BVOL7D

The bear raid was on in full force yesterday. Bitcoin fell over 5% from $230 to $220 over a few hours. Shorts were licking their chops and the number of Bitcoin swaps outstanding jumped over 20%. Rates went skyward, reaching over 0.10% per day at one point yesterday.

Screen Shot 2015-06-02 at 7.09.52 am

The chart above shows the jump in XBT swaps outstanding on Bitfinex. Bears borrow XBT and then sell it on the spot book. Any with XBT can lend at a rate to the bears. The $212-$225 kill zone for margin longs has been well documented. Bearish traders are hoping to trip a wave of margin calls, causing the price to plummet towards $200.

The market was here before a month prior. The price stalled in the $220-$222 range, and then made a run at $210. The bears will attempt another raid, but the longer the price stays above $220 the more skittish shorts will become. Faced with an unlimited upside shorts race to cover at the first sign of a rebound.

The best way to play the current limbo in price is to go long weekly volatility. BVOL7D expires each Friday based on the past 7 days price volatility on Bitfinex. The price will yo-yo $220 -> $210 -> $225, or will melt straight to the sub-$200 core. Regardless of which way it goes, being long volatility will be a profitable trade.