Form 13F Goelzer Investment Management For: 9 April

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Analysis

Regulatory and litigation noise in crypto is creating elevated implied volatility in derivatives that will persist for months, not days. That sustained uncertainty is a two-edged sword: it compresses spot liquidity (wider bid/ask) and widens basis between spot and futures, which inflates roll costs for futures-based products and creates arbitrageable dislocations for balance-sheet-rich market makers. Exchanges, custody providers and futures venues (CME-like franchises) are second-order beneficiaries because they capture fees regardless of directional flows; conversely, retail-native brokers and leveraged token issuers are most exposed to abrupt outflows and forced deleveraging.

Tail risks center on regulatory regime shifts and high-profile enforcement actions that can trigger multi-week deleveraging cascades. On a days-to-weeks horizon, expect episodic spikes in funding rates and liquidations during enforcement headlines; on a 3–12 month horizon, formal guidance or court precedents that clarify token classification will re-price risk premia and materially re-open institutional flows. A regime that converts legal ambiguity into clear rules is bullish for long-duration allocations (ETFs, custody mandates) but will likely crush short-term volatility-selling strategies that rely on calm markets.

Second-order supply effects: miners and hardware suppliers face asymmetric exposure to policy and power-cost volatility — a modest regulatory squeeze on exchanges can push miners to sell Bitcoin inventory, amplifying downside momentum; alternatively, clarity that fosters ETFs forces miners to reallocate balance-sheet fungibility into capex. The actionable window is now: volatility can be harvested structurally by fee-capture and basis trades, but directional conviction should be staged around regulatory catalysts (court rulings, SEC guidance) expected in the next 3–12 months.

Key Decisions for Investors

• Long CME (CME) vs short BITO (ProShares Bitcoin Strategy ETF) — 3–9 month pair. Rationale: capture fee/volume upside at CME while shorting roll-contango sensitivity in futures ETF. Position size: 2–3% NAV net exposure; target 20–35% relative return; stop-loss if CME vols collapse by >40% or if BITO discount reverses >25%.
• Defined-risk long on COIN (Coinbase) via 9–15 month call spread (buy longer-dated call, sell higher strike) — expect regulatory clarity to drive institutional custody flows. Risk: premium paid (~100% loss of premium); Reward: 2–4x if exchange volumes and custody mandates accelerate post-clearance.
• Volatility arbitrage: small-market-maker style basis capture — fund buys spot BTC (or holds BTC inventory) and sells front-month BTC futures to earn roll/yield when contango widens. Timeframe tactical (days–months). Capital-light hedge: size to maintain <5% NAV directional exposure; aim for 5–15% annualized carry with liquidation thresholds on funding >1.5%/week.
• Hedge miners and concentrated corporate BTC exposure: buy 3–6 month puts on MARA/RIOT or buy protective put wings on MSTR for downside protection if enforcement headlines accelerate. Allocate 0.5–1% NAV to insurance; payoff asymmetric — protects 15–40% downside scenarios with limited premium spend.
• Contrarian leg: tactical 12–24 month long on a spot BTC proxy via an on-exchange trust or approved ETF (ticker-agnostic) after a 25–35% volatility-driven drawdown. Risk/reward: target 2–4x upside if institutional flows resume post-legal clarity; keep a 20% stop to limit gamma drains during protracted regulatory uncertainty.