1/ A bullish self-reinforcing cycle seems to have developed in ETH. The dynamic is as follows:
- ETH spot rallied, pricing in the impact of EIP-1559. (85% price increase from the 1718 low in July)
2/ - The sharp move higher has reignited interest from speculators who are no longer just trading with leverage on ETH, BTC and altcoins. NFTs are the new speculative darling.
3/ - The trading volume in NFTs has been incredible, surpassing any other ETH transaction venue now including Defi and Stablecoin flow
4/ - This has led to a greater burn rate on ETH, spurring further price appreciation which in turn encourages more interest and speculation.
5/ While this ETH move and overall crypto move higher has been positive for us, we remain wary of potential downside risks on the horizon. Recall our market update from 8 July:
6/ โ..we expect a dampened trading environment from here to Aug (short vol), followed by a rally possibly on the back of the EIP-1559 mainnet implementation (long spot, long calls), & then the larger Q4 Wave 5 selloff on the Fed's taper (sell spot, buy downside risk reversals).โ
7/ And also our historical price analog which anticipates downside pressure following a sharp rally.
With the recent hawkish Fed speak and strong US data (particularly US CPI tomorrow), could the indication of tapering from the Fed be the trigger for a sell-off?
8/ We are unsure.
We are also increasingly uncertain about how crypto prices would be impacted by macro forces given the idiosyncratic divergences between BTC and macro assets such as Gold (historically 62% positive correlation).
9/ So we remain long delta but we have been buying downside gamma for protection.
In options, the frenzied buying of calls in both BTC and ETH across the curve has resulted in a short squeeze (in both spot and vols).
10/ We think this flow comes from funds and large speculators making large topside bets, buying BTC strikes up to 80-100k and ETH strikes up to 8-10k from as early as September 2021 out to June 2022
11/ This has pushed implieds in BTC from around 80% end-July to about 100% now and in ETH from around 100% to 120% now. A substantial move.
12/ The QCP desk was on the other side on a good part of the vol buying so weโve taken some pain on our short vol position as well.
Interestingly enough, realised vol has not picked up substantially on this move and skew remains relatively muted.
13/ We maintain our short vol view. In fact, vega (longer dated puts and calls) looks like a good sell at these elevated levels.
1/ Another try at breaking 40k-42k in BTCUSD today despite Amazonโs firm denial of the rumors about them accepting crypto as a mode of payment
2/ The QCP options desk saw the same pattern of flow in the options market that occurred before the Monday rally, a wave of call buying (over 2,000 BTC notional at 42k-44k strikes across 3-week expiries)
3/ In addition, there was an unusual spike in the FTX margin lending rate to 300% in line with the large spot buying on FTX at the same time
1/ We turned bullish last Wed but werenโt expecting the short squeeze to happen quite so soon! Weโve been pleasantly surprised by how supported the market was after Wednesday & sentiment flipped decisively bullish into the weekend
2/ The QCP options desk took down a decent amount of front-end call buying flow in the last few days. Of particular note was the call demand from one or two large players who lifted about 2,500 BTC notional of close-date calls across 33k-36k strikes
3/ Market was nervously bid as we approached the 35-36k short gamma region. Dips were brief and shallow, coupled with the non-stop call buying requests popping up late into Asia night on Sunday
1/ There's been much talk about the upcoming GBTC share unlocks which begin in earnest next week. We've discussed Grayscale and GBTC previously but would like to go into greater detail in the second part of this note
2/ GBTC is still primarily a retail vehicle, where the known public institutional holders account for 12.21% of the total outstanding shares - of which 3AC is the largest shareholder at 5.62%, holding a very auspicious 38,888,888 shares. The upcoming unlocks are for..
3/ ..institutional holders who subscribed directly to GBTC 6 months ago & this batch consists of all the new Q1/2021 positions, largely ARK's last tranche. To be clear- we dont expect these unlocks on its own to have significant impact on the overall market outside of GBTC itself
1/ Positive start to the week as we enter the second half of 2020 with promising bounce off the lows.
2/ Since the 26 Jun technical alert , BTC price rallied above 36,400 level yesterday, still 3,000 points from the 39,400 BTCUSD target level. We saw the defining low last Tuesday following our tweet flagging โTurnaround Tuesdaysโ
3/ Since then, BTC has found good support at the 30k level. Leaning on this, we've formed a moderately bullish bias.
Our favourite trade continues to be short BTC strangles within the 30k/40k range (from the 21Jun broadcast)
The FOMC meeting last week had hawkish sentiments that the market wasn't expecting or pricing into the June meeting
2/ From an objective perspective it was a rather neutral decision, as Chair Powell kept talking up the transitory nature of inflation and the rest of the committee had kept their longer-run inflation forecasts close to 2% as well, indicating they believed the same
3/ However the shift in stance at this meeting itself - where Powell said that they would begin talking about tapering, rather than talking about talking about doing it, which was earlier than most expected, and showed that this FOMC under Powell had a red line too..
1/ The market looks like it's long gamma with BTC being pinned around the 40k level as we await FOMC headlines tomorrow. We agree with Paul Tudor Jones that this coming FOMC meeting will likely have a binary market reaction
3/ Should the Fed remain dovish, cryptocurrencies would have the most upside potential until September at least. Especially given the overselling we've seen relative to other macro markets since the May CPI printโฆ