The current cryptocurrency market is challenging due to issues at Silvergate bank, operational problems at major exchanges, and anticipation of Ethereum's upcoming Shanghai upgrade. Matrixport suggests using relative value trades, which involve trading securities in relation to each other, to navigate this market. Markus Thielen, head of research and strategy at Matrixport, recommends buying call options on Ether and financing them by selling calls on Bitcoin, which allows traders to purchase a high-volatility asset (Ether) at the price of a lower-volatility asset (Bitcoin). Call options give the right to buy the underlying asset at a predetermined price on or before a specific date, while put options give the right to sell.
According to Matrixport, the use of relative value trades could be a beneficial strategy in the current challenging cryptocurrency market. The suggestion involves buying a high-volatility asset, ether, for the price of a lower-volatility asset, bitcoin, by selling a bitcoin call option to fund the purchase of an ether call option. The strategy is based on the assumption that the spread between the annualized 30-day realized volatility of ether and bitcoin will increase, as it has historically, and that the upcoming Ethereum Shanghai upgrade will cause ether calls to become pricier relative to bitcoin calls. This undervalued spread offers great risk/reward potential, as the upgrade is expected to increase capital efficiency and encourage more investor participation, possibly leading to an increase in ether price.