Summary Pre-market volatility driven by AI news impacts Bitcoin and stocks; leveraged traders are reducing exposure, leading to further crypto sell-offs. February is historically strong for Bitcoin, with a 90% win rate and a 14.4% average gain over the past decade. MicroStrategy's aggressive Bitcoin strategy and potential for increased institutionalization of Bitcoin are positive catalysts. Selling long-term puts on IBIT offers a way to profit from Bitcoin's volatility while maintaining a bullish position. As I'm finishing up this article, pre-market Bitcoin ( BTC-USD ) is trading down 5.5%. The NASDAQ is down ~4% and the S&P 500 ~2.2%. The futures being this red mostly seems to be a function of the impressive large language model by DeepSeek that appears to have been trained in a very cost-efficient way. Certainly, good news for certain AI related stocks and bad news for some AI related stocks. The pre-market moves suggest an attitude of sell-now and figure out which is which later. Crypto is getting caught up in this, and I suspect that's due to leveraged operators reducing exposure because of this overnight volatility. Crypto and AI have been some of the more successful systematic trades, and quant/technical traders are likely long both in big ways. As the need to derisk is rising, this is where the liquidity is. I've been writing this article unaware that DeepSeek would have such a big impact on crypto today, but I've added this commentary because it seems like an opportunity, and I've added Bitcoin exposure in the pre-market. Keep in mind that if this news results in an extended period of deleveraging, the bottom isn't in yet, and it seems somewhat likely crypto remains caught up in it even though the news itself doesn't fundamentally impact it. February tends to be seasonally strong for Bitcoin. Over the past 10 years it has risen about 90% of the time and averaging a 14.4% gain. There is no direct seasonality data on Seeking Alpha, but it is also reflected in the Grayscale Bitcoin Trust ( GBTC ) data, which is an imprecise proxy but shows a win-rate of 77% and a 14.4% average 9-year gain. GBTC seasonality (Seeking Alpha) Another favorable news item has been MicroStrategy's ( MSTR ) increase in authorized shares . This basically paves the way for the firm to come up with additional capital raising plans. The firm is already very aggressively raising capital and is single-mindedly in terms of its capital allocation policy; it's all-in on Bitcoin. This is especially important because MicroStrategy trades at a multiple of the Bitcoin on its balance sheet. This theoretically enables MicroStrategy to take out an unlimited amount of Bitcoin. Obviously, this ends if the multiple is lost or if tax issues arise. But for now, the firm is a positive catalyst for the underlying. Perhaps the most interesting trade that's possible with the iShares Bitcoin Trust ( IBIT ) is to sell Bitcoin volatility. It seems a very obvious trend to me that we'll see increased institutionalisation of Bitcoin over, at least, the next 4 years. Generally, institutionalisation means more volume, more liquidity, smaller spreads and a diversification of the shareholder base. Institutions can definitely herd into the same trades and all get caught out at the same time (just think back to 08'/09') but investment committees and multi-year plans also mean that allocations aren't changed overnight. I think this institutionalisation is likely, given an administration that is 1) surprisingly crypto-friendly ( the President and his wife launched cryptos ). 2) the SEC pivot under the new administration towards regulation and launching a crypto task force. 3) The withdrawal of SAB 121 that required banks to put cryptos (even held for others) on their balance sheet as liabilities. This obviously made it very unattractive for banks to serve as a crypto custodians while they operate the financial interfaces and pipelines that most people engage with. I have very high expectations this withdrawal will move major banks towards offering crypto-services. 4) Reserve: I've already mentioned the President showing a positive attitude towards cryptocurrencies, as well as instituting a task force. In addition, an executive order launched a working group to look at a U.S. cryptocurrency reserve, reliable stablecoins and surprisingly to prohibit central bank digital currencies. The U.S. cryptocurrency reserve idea initially seems to revolve around an institutionalisation of seized cryptocurrencies. The U.S. has seized around 200,000 Bitcoin over time. Although not as impactful as acquiring 200,000 Bitcoin over time (a Cynthia Lummis plan that could still get implemented) it removes overhang. It is also an insitutionalized base, which lowers the bar to start buying in the future. The main ETFs assets under management are illustrative of the increased institutionalization: Spot Bitcoin AUM (The Block) Numbers will have changed some as the market opens, but lately realized volatility has come in at 0.57 vs implied volatility of 0.62. Implied volatility hasn't dropped below 0.47 in the past 52 weeks, but realized volatility dropped as low as 0.34. A relatively simple way to sell some of Bitcoin's attractive volatility and still be positioned in a bullish way is to sell a long-term put with a strike above the current spot price. Because this is essentially a longer-term trade, I set up an example selling the $80 IBIT put with a January 27' expiry. Keep in mind that options trading is very risky. Especially if you don't reserve the capital. Also, take note that the maximum loss here is greater than the maximum profit. Visualisation of selling an IBIT put (IBIT) To sell that $80 put, you receive $31.80 up front. It will actually be a bit more as the market opens because these numbers haven't adjusted for the 5% pre-market drop. As is the maximum loss should be $4855 per contract. That's reached if IBIT goes to zero. The maximum profit is less at $3145. Keep in mind, this is an asymmetric risk. I'm fine with that because it seems much more likely to me that IBIT ends up above the break-even point of $48.55. A ~15% drop from here by expiry. (break-even should be lower with actual today numbers). The upside is still capped, too, which can be a downside if Bitcoin goes on a tremendous run. If you're very bullish, buying calls or owning IBIT are better ways to express that. I'm quite bullish, but also like to sell some IBIT volatility along my Bitcoin exposure. Simply because I expect this volatility to decrease over time (somewhat independently of the exact price path).
