1/ #bitcoin has been trading heavy this past week.
On Thursday 18 November, with BTC trading just above 60,000, a โsharp hedge fundโ bought a huge chunk of BTC and ETH calls (bullish). ๐
2/ The desk took down about 1,000x of BTC and about 25,000x $ETH of December calls. And we expected a rally given the size of the flow.
However, significant selling pressure continued, pulling BTC below the 56,000 level into Friday close.
3/ After Friday expiry, we saw a relief rally which extended over the weekend bringing BTC back up towards 60,000.
4/ Again, this rally was short-lived as selling pressure resumed right on the dot in Asia morning, possibly indicating an institutional player (who might have switched on a spot selling program at the start of the work week).
5/ Monday night in Asia saw yet another rally attempt on Powellโs renomination headlines. For the third time, the rally was quickly faded with heavy selling dragging BTC to a new local low of 55,415.
6/ On this move down, โsharp institutionalโ players were rapidly buying puts and selling calls in March for both BTC and ETH (bearish). The same 'sharp' guys did the same thing on 16 November, before BTC dropped below 60,000.
7/ We took down about 600x of BTC risk reversals and about 6,000x of ETH risk reversals. This was a good take-profit on the ETH calls that we had sold on the heightened March vols caused by the โRaoul effectโ.
8/ The market is clearly nervous about the constant selling pressure in spot. Backend vols have gone up about 4% in BTC and 5% in ETH (Chart 1). Risk reversals also remain convincingly skewed to the downside (Chart 2 & 3).
9/ So far, the selling pressure has effectively capped every rally. The question is whether it will lead to a downside break.
10/ We are betting that the market will consolidate instead of breaking lower. So we are taking the opportunity to short vols in BTC and ETH as well as take profit on our downside risk reversal position and flip to a topside skew.
11/ With that said we have protection in place from long wing positions (far strikes) collected from yet another record setting week in Defi options.
12/ The short vega position in BTC and ETH runs against long vega in the Altcoin vol book, which has been growing larger and wider as the Defi vaults rapidly increase the range of Altcoins available.
13/ $AVAX and $ROSE have had standout rallies this week, making new highs at 147 and 0.4663 respectively.
ROSE has been particularly impressive as it has rallied in the face of a large token unlock that doubled the circulating supply.
14/ $ALGO had a shock spike on Thursday, trading to almost 13 USD in Korea! This happened on the back of ALGOโs listing on Upbit Korea.
15/ It quickly traded back below 2 USD but we do expect a slew of positive headlines as we head into the Algorand Decipher conference in Miami next week.
(@dariussitzl & @eugenekyj of QCP will be at the conference and there for the week if anyone wishes to catch up in person)
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1/ Since our last update on 10 November. BTC went from a 69,000 high to a 58,638 low today (-15%) and ETH has gone from a 4,868 high to a 4,108 low today (-15.6%).
A series of negative factors could be the reason for this sell-off. Hereโs a quick timeline. ๐งต
2/ 10 November: Shock US inflation print at 6.2%, the highest since November 1990, creates a โrisk-offโ sentiment across global markets. How long can the Fed continue to claim inflation is transitory before being forced to take corrective action?
3/ 12 November: The SEC rejects VenEckโs proposal to launch a physical Bitcoin ETF.
1/ Held in Singapore last week, the Asia Financial Markets Forum hosted by @business, featured Senior Minister Tharman Shanmugaratnam, major bank CEOs, top hedge fund managers and us! (representing the crypto community)
1/ As expected, BTC is taking a breather after being stretched at new highs (67,000). ETH tested the previous high (4,385) and has come back off as well. BTC has broken below 60,000 and ETH has broken below 4,000.
2/ Despite this quick dip from the highs, the market feels relatively calm and perhaps even slightly optimistic that this is just a dip before a larger rally into year-end.
3/ In vols, besides a spike in front-end ETH vols, there has been no significant reaction to this move. In fact, the market remains optimistic with risk reversals still skewed to the call side (Chart)
The BTC ETF approval by the SEC and successful launch of the Proshares ETF ($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.