Bitcoin and Block (NASDAQ: SQ)Trade Update

On Wednesday, I laid out my bullish thoughts on bitcoin. The world’s biggest asset manager Blackrock (NYSE: BLK) is set to launch a Bitcoin ETF that will be backed by actual bitcoin instead of derivatives like options and swaps. It sure seems that this marks a new era of acceptance for bitcoin and that will likely lead to higher prices.

This is the updated chart I shared with you on Wednesday. The purple line at the top shows the resistance level that capped the rally back in April, which was back in play after the Blackrock ETF announcement. 

I told you that the area around $31,000 is the breakout point for bitcoin. As you can see from that last glyph on the right, that breakout is happening right now: And I’m sure the news that Fidelity filed an application with the SEC just yesterday to launch its own bitcoin ETF is helping the bullish action today. 

I also told you that Block (NASDAQ: SQ) would be a good way to play this new era of acceptance for bitcoin. Block is the parent company behind the Cash App which has 51 million users. A couple years ago, Block added stock and crypto trading to the Cash App. It’s now one of the easiest ways to trade bitcoin. 

Plus, Cash App is popular among the same demographic that loves bitcoin (remember: as I told you Wednesday, I’m still grumpy about bitcoin, but I’m not going to ignore a good trade). 

So, in a nutshell, I think bitcoin trading volume on Cash App will surge and trading commissions for Block will too, and the stock will rally.

As a trade, I recommended the Block call option at the 70 strike that expires on July 14. I advised buying these calls under $0.60. They opened Wednesday at $0.46 and are currently trading around $0.80.

Well, That Was Fast…

Of course, as I’m writing today’s letter, I see bitcoin start to tank on my screen. That chart I shared earlier showing a breakout over $31k now looks like this: 

Note that bitcoin was up $264 to $3,093 at around 8:30 this morning, by 10 it was down $421 to $30,128. 

Sigh. 

The reason for the reversal broke at 9:30 or so by the Wall Street Journal: the SEC returned Blackrock and Fidelity’s applications for bitcoin ETFs because they lacked certain information…

According to the WSJ: the SEC told the exchanges that it returned the filings because they didn’t name the spot bitcoin exchange with which they are expected to have a “surveillance-sharing agreement” or provide enough information about the details of those surveillance arrangements.

The issue is that the SEC believes bitcoin ETFs are vulnerable to fraud and market manipulation and so wants these applicants to specify what they’re calling “surveillance agreements” with whichever exchanges they will use…

Never mind that the SEC has already approved 6 bitcoin ETFs that hold bitcoin futures contracts instead of the physical. 

I’ll tell you straight out: this is a BS move by the SEC. ETFs that hold physical assets are much, much safer than ETFs that hold derivatives. Derivative-based ETFs – like those double- and triple-leveraged ETFs – have a habit of blowing up and getting closed or delisted. 

There’s no way the SEC is going to keep heavyweights like Blackrock and Fidelity from doing what they want. And if he keeps trying, there’s no way SEC director Gary “Grumpy” Gensler will keep his job. 

So, take advantage of the weakness for bitcoin. 

But if you bought those Block (NASDAQ: SQ) call options, go ahead and take the nice gain. We’ll revisit that trade again in the future.

That’s it for me today. Have a great weekend and I’ll talk to you on Monday.

Briton Ryle
Chief Investment Strategist
Pro Trader Today 
brit.ryle@protradertoday.com

Facebook: https://www.facebook.com/ProTraderToday

Twitter: https://twitter.com/BritonRyle

Array