10x Research Flags Caution After Capturing 155% Options Gain
Investment research firm 10x Research is advising caution on crypto-related equities, suggesting the recent rally in Bitcoin and Ethereum has created over-extended conditions in stocks like Coinbase. The firm highlighted its own successful trade, noting that a Bitcoin call spread option it recommended on February 27 has since returned 155%. Despite this profitable move, the firm warns that low trading volumes in crypto stocks make this a poor time for heavy investment.
The analysis points to a disconnect between the drivers of the spot crypto market and the sustainability of equity performance. While Bitcoin and Ethereum exceeded expectations, the underlying mechanics suggest a fragile foundation for a continued bull run in related stocks.
Derivatives-Driven Rally Lacks Bullish Conviction
The recent Bitcoin price advance was not driven by new, aggressive buying but rather by technical factors in the derivatives market. According to 10x Research, the rally was largely fueled by traders unwinding large bearish put option positions established around the $55,000 to $60,000 strike prices. As these positions were closed, market makers who sold the puts were forced to buy Bitcoin to rebalance their own exposure, creating upward pressure on the price.
Crucially, this activity was not accompanied by significant new buying of call options, which would signal trader conviction for further upside. The absence of such bullish positioning indicates the price action was more a result of unwinding old hedges than initiating fresh, optimistic trades. This technical-driven momentum is often short-lived, a fact underscored by the price's quick retreat after briefly touching new highs.
Circle Stock Gains 103% on Short Squeeze as Equity Volumes Lag
Crypto-related stocks have seen dramatic gains, but these may not be fundamentally supported. For instance, shares of Circle increased approximately 103% since February 20, a move 10x Research attributes primarily to a short squeeze rather than new investor inflows. A short squeeze occurs when a rising price forces traders who bet against a stock to buy it back to limit their losses, artificially accelerating the rally.
This dynamic, combined with the observation of low overall trading volumes in the sector, strengthens the case for caution. When sharp price increases occur on thin volume, it signals a lack of broad market participation and increases the risk of a sharp reversal. 10x Research's guidance suggests that the impressive gains in stocks like Circle and the temporary strength in Bitcoin do not reflect a healthy, sustainable trend for crypto-related equities at this moment.
