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Will Option Vaults Dominate Real Yield Products in Crypto?

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Will Option Vaults Dominate Real Yield Products in Crypto?

Options strategies, especially weekly covered call writing, are a very popular yield-generating mechanism used in TradFi.

The U.S Covered Calls ETFs alone have a total of $12 Billion under management with the best performing ETF being 19.47% in returns. 

According to Flynt Finance’s back-test report, Bitcoin-covered calls have been shown to produce approximately 49% returns per annum if the strategy was run at a certain risk-return level.

An important factor to consider when running the strategy is the selection of delta and leverage that can maximize returns yet lower the risk of being in the money.

Further, if 10 Bitcoins were invested into this strategy from April 2019, the current asset holdings would be 26.7 BTC. Due to the highly volatile nature of cryptocurrencies, the profits are much higher compared to TradFi.

What are covered calls?

Covered calls are systematic options trading strategies that generate passive income by selling call options on an asset owned by the investor each week.

When selling options, the seller transfers the right to buy the asset at a specific price in return for a premium. The premium is then translated into yield on the investment.

Though it seems quite simple, it is important to keep in mind that the execution (strike) price needs to be selected with care as it is the decider for whether the investor ends up with a win or loss for the week.

Based on the back-tested results, the sweet spot Flynt has discovered managed to achieve a 96.4% win rate over 3.4 years.

Given that yields are created through the current covered call strategy, the real yield is made without any false promises or token emissions, providing sustainable returns for the investors.

Transparency is what you should look

In this context, the market is still in a fearful state of lending yields after the Terra Luna collapse, with memes going around on Twitter saying “if you don’t understand the source of yield, then you are the yield.”

Due to this incident, the industry has matured and many just skip services that provide returns without disclosing the source. In fact, the Real Yield narrative is what many believe will be the natural next step for crypto investors which portrays dividend-like returns.

In simple terms, protocols and services that provide returns to investors through profits generated through the platform or trading activities are a sustainable way of earning passive income.

Flynt’s CEO, David Seo, emphasizes that “as a player in web3, one of the most vital actions to take is to be radically transparent and communicate each and every step the service is making” and that “Flynt is willing to display all the information we have regarding the services we provide because we have nothing to hide”.

Flynt explained that a 5x covered call strategy is available on Bitcoin, which provides a sustainable yield of up to 40%.

They highlighted that Flynt is in the stage of back-testing other assets and various structured strategies that can max out returns for relatively less risk.

Flynt also mentioned that they pride themselves on only providing products that have historically made profits rather than blindly focusing on expanding product lines.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bit Coin

Grayscale Launches New Investment Product While Bitcoin Trust Crashes to 35%

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Grayscale Launches New Investment Product While Bitcoin Trust Crashes to 35%

Grayscale Investments is offering investors an opportunity to invest in Bitcoin mining hardware in the bear market.

The new investment opportunity, called the Grayscale Digital Infrastructure Opportunities LLC (GDIO), is now open to qualified individual and institutional investors, even as the asset manager allows ETF-related court proceedings to run their course.

Grayscale putting capital to work

Grayscale will use investor capital from the GDIO to buy mining hardware for a minimum of three years. It will use the hardware to mine and subsequently sell bitcoin. Mining is the energy-intensive process undertaken by a computer network to create a new transaction block and verify it. The node in the network that creates the block is known as a miner. A miner is rewarded in bitcoin for his effort, which typically requires large amounts of cheap electricity and computing power.

Part of the proceeds Grayscale will earn from its efforts will be paid out quarterly to GDIO investors.

“Grayscale’s unique position at the center of the crypto ecosystem enables us to create offerings that allow investors to put capital to work through differing market cycles,” stated Michael Sonnenshein, Grayscale’s chief executive.

GDIO represents another way the company has sought to provide investors with exposure to bitcoin without directly holding the asset.

Investors can also purchase shares from its GBTC trust and gain exposure to bitcoin through Grayscale’s legally regulated business in the U.S.

But Grayscale has a problem. Because investors cannot redeem shares in the trust for bitcoin, the price per share has dropped drastically, trading at a discount of 35% to its Net Asset Value. 

At the close of the trading day on Oct. 5, shares were trading at a shade over $12, despite being backed by $18.45 worth of bitcoin.

To mitigate this discount, Grayscale has pursued the conversion of GBTC into a spot bitcoin exchange-traded fund, which has so far been unsuccessful. The U.S. Securities and Exchange Commission denied the company’s latest application in June 2022, prompting Grayscale to pursue legal action against the federal agency. 

Nic Carter of Castle Island Ventures, a venture capital firm focused on early-stage public blockchain startups, said that Grayscale could wind down the ETF:

watching the GBTC discount. looks like ATL at -35%. on top of discounted spot BTC. paths to breaking open the piggy bank: SEC can approve ETF conversion, or Grayscale can wind down the trust themselves if they so choose.

— nic carter (@nic__carter) June 17, 2022

The SEC maintains that spot bitcoin ETFs are prone to underlying market manipulation.

Grayscale undeterred by SEC rejection

Despite consistent resistance from U.S. regulators, Grayscale launched its first European ETF in May 2022, which tracks the Bloomberg Grayscale Future of Finance Index, offering customers exposure to institutions at the crossroads of finance, technology, and cryptocurrencies.

Grayscale raised investors’ eyebrows recently when it announced that it had applied with the SEC to distribute 3 million ETHPoW tokens that were distributed to all Ethereum (ETH) holders after the controversial proof-of-work fork went live. 

At the time, Grayscale said it was seeking the rights to sell the tokens and pay out shareholders. 

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Colorado is accepting crypto for tax payments — it could be a mess or a shining example

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Colorado is accepting crypto for tax payments —  it could be a mess or a shining example

Colorado is now accepting crypto for tax payments — but if you choose to use that option, it could change the amount you owe…
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BNB Chain confirms BSC halt due to ‘potential exploit’

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BNB Chain confirms BSC halt due to ‘potential exploit’

Rumors of a significant hack on the BNB Chain were confirmed by the blockchain’s team, with all deposits and withdrawals suspended on the network…
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