Bitcoin is going into a short-term consolidation? Use the Iron Eagle Strategy to profit

Last week, our article focused on the short-term bearish outlook for Bitcoin. We suggested earning premium or buying Bitcoin at a discount by selling a put option with a strike price of $51,000 expiring on September 27.

As expected, Bitcoin dropped to around $52,000 shortly after we published the article. But surprisingly, it rebounded to around $57,000. Although it seems unlikely that Bitcoin will drop below $50,000 at this point, the beauty of options trading strategies is that you can still profit from premiums even in unpredictable market conditions like the current one.

This week, we’ll briefly review last week’s macro data to assess where Bitcoin might be headed next. In short: we may be entering a period of consolidation.

Let’s dive in.

Reverse Repurchase Program (RRP) balance falls to new low

RRP is one of our @cryptohayes favorite macro indicators. The reason is that it clearly reflects the liquidity situation in the macro environment - a key factor in understanding the direction of cryptocurrencies.

Historically, high RRP has been bad for Bitcoin and vice versa.

Since last week, we have seen a significant decline in RRP balances. In fact, they have fallen to their lowest level since 2024, reversing our previous concerns about a continued rise. This sharp decline in RRP balances has important implications for the market. Here are the reasons:

• Increased liquidity: Lower RRP balances mean more funds flow back into the broader financial system, potentially increasing liquidity in various markets.

• Increased risk appetite: As liquidity increases, investors may be more willing to take risks, which could benefit assets like Bitcoin and other cryptocurrencies.

• Positive outlook for risk assets: The combination of increased liquidity and improved risk appetite generally creates a favorable environment for risk assets such as cryptocurrencies.

Not all is bright

Don’t forget — we are not that far from the mini-crash on August 5th caused by the unwinding of the infamous yen carry trade. As Arthur’s recent post shows, the yen has now recovered to the level we experienced during the mini-crash. A stronger yen is bad for Bitcoin because traditional financial institutions often borrow yen at low rates, convert it to dollars, use it to invest in assets, create leverage, and then conduct interest rate arbitrage.

Conversely, a weaker yen is good for risk assets like stocks and Bitcoin. As the yen strengthens, we may see institutions start to close their positions, leading to forced selling of assets, which could cause market weakness or even a crash.

The current strength of the Japanese yen could increase selling pressure, potentially hindering Bitcoins continued rise.

Note: Bitcoin may enter a period of consolidation in the coming week

Given the current market conditions, Bitcoin appears poised to enter a period of consolidation in the coming week.

On the one hand, the significant drop in RRP balances indicates increased liquidity, which could create a favorable environment for risk assets such as Bitcoin, which could support gains. On the other hand, a stronger yen poses a risk as it could lead to the unwinding of carry trades and subsequent selling pressure on Bitcoin.

Other catalysts to watch?

Additionally, upcoming events such as the Trump-Harris debate, the August Consumer Price Index (CPI) release, and the TOKEN 2049 conference could introduce more volatility. These mixed signals suggest that while there are reasons for both optimism and caution, Bitcoin may trade in a range as the market digests these conflicting factors.

Traders and investors should remain vigilant and prepare for potential volatility in either direction as these catalysts unfold.

Put your market ideas into practice: Trading options

So how do you take advantage of the prospect of a short-term consolidation? The answer may lie in the Iron Condor strategy .

An iron condor is a neutral options strategy that involves simultaneously selling a put spread and a call spread with the same expiration date but different strike prices. This strategy is ideal for traders who believe that the underlying asset (in this case, Bitcoin) will remain within a specific price range until expiration.

Trading strategy:

• Buy 1 Bitcoin put option with a strike price of $55,000, expiring on September 20

• Sell 1 Bitcoin put option with a strike price of $56,000, expiring on September 20

• Sell 1 Bitcoin call option with a strike price of $58,000, expiring on September 20

• Buy 1 Bitcoin call option with a strike price of $59,000, expiring on September 20

Potential Benefits:

• Max Profit: $501 (premium earned if Bitcoin remains between $56,000-58,000 at expiration)
  

• Maximum loss: $499 (if Bitcoin is outside the range at expiration)

• Breakeven Points: $55,270 and $58,630

Advantages:

• Limited Risk: Maximum loss is capped, providing better risk management than selling naked options.

• Profit in a sideways market: This strategy can be profitable even if the Bitcoin price does not move significantly.

• Flexibility: You can adjust the width between strike prices to balance potential profit and risk.

risk:

• Limited profit potential: Maximum profit is limited to the net premium received.

• Complex Management: Managing four options positions can be more challenging than a simple strategy.

• Exercise risk: Especially when close to expiration, there is a risk that the sold options will be exercised prematurely.

This Iron Condor strategy allows you to take advantage of the prospect of short-term consolidation in Bitcoin, with clear risk and the potential to profit from broader price moves.