Are you a “HODLer”? Jamie Dimon wants to test your resolve. In statements on Capitol Hill , addressing questions from Senator Elizabeth Warren of Massachusetts on cryptocurrency, he said, “The only true use case for it is criminals, drug traffickers … money laundering, tax avoidance…If I was the government, I’d close it down.” I believe he’s ignoring a legitimate use case, which is a convenient, secure medium of exchange unmanipulated by government money printing. While he may choose to ignore the biggest, and in my view, legitimate reason for a substitute to government fiat currencies, cryptocurrency holders and those businesses directly tied to cryptocurrency should not ignore these statements. Dimon isn’t the government, and although he is one of the most prominent voices in finance, it isn’t clear that Elizabeth Warren or anyone else in DC can simply “close it down” as he suggests. Even if they don’t ban cryptocurrencies, they are likely to attempt to impose greater regulation and taxes. Put simply, they can certainly make things difficult. That’s a risk to cryptocurrency and to a number of associated businesses, several of them publicly traded. Microstrategy (MSTR) underperformed the S & P 500 by 1.1% Tuesday. Riot Platforms (RIOT) , down 2.5%, was even worse, and Coinbase (COIN) , the cryptocurrency exchange, fell nearly 4%. There isn’t much business for a crypto exchange in the crypto-less world that Jamie wants. COIN YTD mountain Coinbase, YTD But if you’re a HODLer you can’t sell. “Hold on for dear life” is your creed. Besides, while COIN is up 280% year-to-date it is still 60% below its all time high reached in 2021. What to do? The options market is implying that COIN could move $24, higher or lower, over the next 30 days (Current price around $135.50). If you own COIN, but don’t want to sell, perhaps because you’re a HODLer, or perhaps because you were lucky enough to buy it far lower but aren’t looking to realize a gain here and now, there may be a partial solution. Hedging your position When I was looking at the February options, one could purchase a February $110/$90 put spread for $4.50, or less than 3.5% of the current stock price. (This put spread would entail buying the February $110 put and selling the $90 put with the same expiration.) An astute observer would notice that the $110 strike is quite substantially below Wednesday’s closing price of $134.64. True enough, but the objective here isn’t to lock in all the gains — that would be very expensive. The objective is to reduce the pain if COIN should give back a substantial portion of the most recent gains. Not perfect, but also not hugely expensive relative to the current share price. Consider that the last price for the February $135 puts, which are at-the-money, was $17.90 or 13.3% of the share price. There are tradeoffs, one can look for cheaper, out-of-the-money put spreads for a partial hedge, or pay up. Big. By the way, for those of you who aren’t invested in COIN or cryptocurrencies and are inclined to take a short bet that pays better than 3-to-1 if it falls back to October levels between now and February expiration (you listening Jamie?), this bet’s for you. DISCLOSURES: (None) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
