1/ Since our last update on 10 November. BTC went from a 69,000 high to a 58,638 low today (-15%) and ETH has gone from a 4,868 high to a 4,108 low today (-15.6%).
A series of negative factors could be the reason for this sell-off. Hereโs a quick timeline. ๐งต
2/ 10 November: Shock US inflation print at 6.2%, the highest since November 1990, creates a โrisk-offโ sentiment across global markets. How long can the Fed continue to claim inflation is transitory before being forced to take corrective action?
3/ 12 November: The SEC rejects VenEckโs proposal to launch a physical Bitcoin ETF.
4/ 14 November: Disappointing reaction to the successful BTC taproot upgrade. There was some expectation that this would be a catalyst for a leg higher in price. The lack of reaction caused a โbuy the rumour, sell the factโ effect.
5/ 16 November (today):
China - The National Development and Reform Commission reiterated their firm no-crypto stance, emphasizing that virtual currency mining is โextremely harmfulโ.
6/ US - President Joe Biden signed into law a bill with cryptocurrency tax reporting requirements, essentially tagging oneโs personal information to each trade above 10,000 USD.
7/ While many have dismissed this as priced-in and somewhat nominal, seemingly innocuous tax measures have been notorious for marking highs in bull markets.
8/ From the 3G auctions in the 1990s that marked the high for the telecoms sector to the special taxes on Australian mining companies in the 2000s that marked the top of the commodity bull cycle.
9/ Todayโs headlines triggered a very sharp leg lower across the crypto market.
BTC broke below the 60,000 level convincingly but has since bounced back above.
10/ We expect some gravity around this 60,000 level given the sheer size of options open interest at the 60,000 strike. Almost 13,000 BTC!
11/ We were neutral BTC last Wednesday across the greeks and have turned slightly long BTC spot and also small short gamma and vega on this move down.
12/ BTC profit came mostly from our short position in the December forwards. We squared up completely today at 7-8%, a significant drop from the highs at almost 25%!
13/ ETH capitulated more strongly than BTC today and we think that this will continue. In options, the โRaoul effectโ was undone in a big way with the March risk reversal collapsing from a call skew of +15% to a put skew of -5%.
14/ The November risk reversal also saw a stunning straight line down to a put skew of more than -10%.
15/ Yesterday through the night, institutional players were buying large sizes of March puts at 3,000 strike and selling calls at 8,000 and 10,000 strikes. Very sharp flow.
16/ Last Wednesday, we bought back our short tenor ETH option shorts. And on Friday, we bought a record amount of ETH gamma, largely from Defi protocols.
17/ This was the perfect protection for todayโs dump and we were able to take profit on the long gamma amidst the violent move today. We remain small long gamma and small short vega in ETH.
18/ Overall, weโve turned quite neutral after this awaited leverage wash-out. We expect BTC to be stuck around 60,000 given the strike gravity. And perhaps more volatility in ETH and Altcoins.
19/ On a side note, the past week has been momentous for Altcoin Defi options. We traded a million USD of AAVE options with ribbon.finance also a million USD of LUNA options on thetanuts.finance.
20/ This is opening up a scalable avenue for Altcoiners to earn genuine yield (not just token incentives) through accessible instruments on Defi. Watch this space for the coming Defi 2.0 explosion.
21/ Our market updates are also available on our telegram broadcast here t.me/QCPbroadcast
โข โข โข
Missing some Tweet in this thread? You can try to
force a refresh
1/ Held in Singapore last week, the Asia Financial Markets Forum hosted by @business, featured Senior Minister Tharman Shanmugaratnam, major bank CEOs, top hedge fund managers and us! (representing the crypto community)
1/ As expected, BTC is taking a breather after being stretched at new highs (67,000). ETH tested the previous high (4,385) and has come back off as well. BTC has broken below 60,000 and ETH has broken below 4,000.
2/ Despite this quick dip from the highs, the market feels relatively calm and perhaps even slightly optimistic that this is just a dip before a larger rally into year-end.
3/ In vols, besides a spike in front-end ETH vols, there has been no significant reaction to this move. In fact, the market remains optimistic with risk reversals still skewed to the call side (Chart)
The BTC ETF approval by the SEC and successful launch of the Proshares ETF ($BITO) has fueled a strong rally in BTC beyond the 64,900 previous high to a new all-time high of 67,000. ๐งต
We remain optimistic but are cautious about downside risk for the following reasons:
1) Leverage levels in the market are very high.
Futures aggregated Open Interest exceeded 400k BTC notional (Chart). This is close to 431k BTC notional OI at the previous all-time high.
Part 2: The following are some of our thoughts and market views about what might follow on from the Bitcoin ETF approvals: ๐งต
a. An Ethereum ETF will likely follow soon after as CME already offers Ethereum futures contracts. However, this also means that until other coins have a futures contract, the US will only be limited to Bitcoin and Ethereum ETFs for the time being.
b. Bitcoin and Ethereum ETFs could reverse the sharp decline in Bitcoin and Ethereum dominance in the crypto market (Chart)
Part 1: In the last few weeks, Bitcoin has made an impressive rally on the back of potential ETF approvals and just pushed to a 62,910 high on the back of the Valkyrie and Proshares approval. Hereโs our take on the matter. ๐งต
1. The approval of a Bitcoin ETF is a positive development. Whatever the case may be, a progressive step from the regulator is good for Bitcoin and the cryptocurrency market at large.
2. We've always said a Bitcoin ETF would be a game-changer. However, in our minds this ETF would have physical Bitcoin as its underlying. The ETFs currently in line for approval have CME futures contracts as the underlying instead.This makes a huge difference.
1/ BTC has been trading in a 53,500 - 58,000 range since the big run-up last week. Itโs also been noticeably outperforming ETH and most altcoins.
2/ In spite of the numerous liquidation-driven dips, the 54,000 TD Support Trend level has held very well. A clear underlying sense of optimism as the market awaits SECโs decision on the BTC ETF applications starting next week.
3/ Funding and forwards have also been heating up over the last two weeks since SEC chair Gensler made favourable comments about a futures-based BTC ETF. Perpetual swap funding went from slightly negative in the end of September to around 20% now.