Building a Bitcoin + Options Portfolio to Hedge Against Crypto Market Volatility

After researching extensively, I found some answers in a speech by Michael Saylor, CEO of  $MicroStrategy (MSTR.US)$. Combining that with my recent thoughts, I want to discuss my views on Bitcoin investment.

We can approach this question from two angles: investment value and investment returns.

Historically, asset evolution follows a pattern:
- Convert temporary things into permanent ones.
- Convert currency into capital.
- Convert local assets into global assets.
- Convert physical assets into digital ones.
- Convert securities into commodities.
- Convert commodities into scarce assets.

Following this direction, your investments are likely to be successful.

What are temporary things? For example, a house, a car, or stocks from a century-old company. Houses and cars depreciate, and century-old companies can become obsolete (e.g., Blockbuster, Eastman Kodak, Sears).

What are local things? For instance, an A-share stock like Angel Yeast, which only covers China and lacks global expansion potential. Its profit growth is predictable and limited.

Bitcoin has an infinite lifespan, unaffected by governments or inflation. It’s intangible, immune to weather and human factors.

Over the past four years, Bitcoin has provided a 55% return, far exceeding stocks, commodities, and bonds.

By 2045, Bitcoin’s price is projected to reach $13 million per coin, and Bitcoin will account for 7% of global assets.

Bitcoin has no options and can’t be shorted, so investing solely in Bitcoin means the volatility is essentially the risk.

I’m not a short-term trader, so for me, using value investing methods for BTC may be more feasible: identify Bitcoin’s lows and its growth potential over the next year, three years, and five years, and ignore the volatility for long-term holding.

However, consider that Bitcoin has related stocks and ETFs. Stocks and ETFs can be shorted, and stocks have options for leveraging and profiting from volatility. For example, Coin and MSTR are strongly influenced by BTC’s performance, and ETFs are fully linked to BTC’s movements.

So, from the perspectives of crypto stocks, ETFs, and options, Bitcoin’s volatility could actually be an opportunity.

Bitcoin is a high-risk investment. I’ve established some investment standards:

As mentioned, Bitcoin can only be bought long, but crypto stocks can be shorted, and options can profit from volatility.

So, you can hold Bitcoin and use options to hedge against Bitcoin’s downside risk.

For example, from August 2 to August 5, Bitcoin dropped 13%, while the puts on $Coinbase (COIN.US)$ rose nearly 270%.

Both Bitcoin and options are high-risk investments. Be sure to manage your positions carefully!

Never go all-in or use leverage. Always leave room for retreat and recovery capital.
Plan to invest no more than 5% of your monthly investment total in Bitcoin,
and allocate no more than 15% of your monthly investment total to Bitcoin + crypto stock options.

The safest method for high-risk investments is to use profits for investing.
Allow yourself to trade short-term, like “buying the dip” and selling for profit, then reinvest the profits into BTC for long-term holding.

As always, invest in a way that lets you sleep well. Using profits for trading will never lead to losses.

Before the U.S. election, there will be many opportunities for Bitcoin volatility. I’ll try to analyze trading entry and exit points.

This is my current thinking on Bitcoin. As a newbie in BTC, I plan to try simulated trading to test my strategy.