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Now, on to the thread! 🧵
2/ While spot prices have been trading in a relatively tight range (before the dip today), vols have been telling an interesting story.
3/ Thursday, 23 December, right after we posted our last market update, we saw a mini short-squeeze with BTC crossing above 50,000 and ETH crossing above 4,000.
Vols spiked up 4% on the back of this. A great opportunity to short vols.
4/ Friday, Christmas Eve, started with aggressive selling of 600x BTC March 40k Puts in thin liquidity, causing March vols to drop from 81% to 75%. Risk Reversals flipped to a call skew as well.
5/ Evening saw the usual Friday DOV flow. Even after buying up most of the gamma (short-tenor options) across all the DOVs, we were still short ETH gamma (from aggressively selling the vol spike on Thursday).
6/ We went into the weekend long gamma in BTC and Altcoins against short gamma in ETH, earning some theta (time decay). This was a good position to have over a thoroughly uneventful Christmas weekend.
7/ Monday, 27 December, front-end vols spiked 10% from aggressive buying of BTC 7-Jan 52k-55k Calls.
Tuesday, 28 December, front-end vols were sold back down in Asia morning.
8/ So over the Christmas week, we saw vols spike hard twice and get sold down even harder each time. And we are asking ourselves why.
Here are a few possible reasons:
1. Realised vol (RV) has been underperforming. 1-month RV 60+%, 10-day RV 30-40+% for both BTC and ETH.
9/
2. Market is rolling short-vol carry positions ahead of the massive year-end expiry this Friday.
10/
3. We reckon market makers are getting increasing long Altcoin vol as the founders and foundations of projects and protocols are increasingly selling call options on their native token treasuries as an effective method of generating yield.
11/ In the absence of vol markets for these native tokens, market makers are forced to sell vol in BTC and ETH instead as a proxy.
12/
4. DOVs getting exponentially larger will have an increasing dampening effect on vols.
13/ Our concern here is that this is sign of a structural shift in vols where implieds will trend downwards toward 60% handle (parity with 1-month realised). If this happens, sell option strategies (short gamma, short vega) would be a clear winner in the near-to-medium term
14/ In spite of this pattern, our position into the new year is nett long gamma, short vega (in BTC and ETH) and long the wings (far strikes).
15/ We haven’t really seen that massive short squeeze that we’ve been expecting but perhaps the calendar turn would produce some fireworks in thin markets.
16/ We hope you’ve been enjoying what we’ve been putting out for the community 😊
Do look out for our year-end research pack, that we will be releasing in the next few days.
Here’s wishing all our readers a very happy new year! 🎉
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1/ If anyone had any doubt that the crypto market is becoming institutional, our option desk traded over $2 billion in options just this week. 🧵
2/The flows have mostly been decent two-way in BTC and ETH but we’ve also seen notable OTC flows in ALGO and LUNA (no surprise as liquidity is streaming out of the two largest Altcoin Defi Option Vaults).
3/ In the past week, panic and nervousness have been leaving the market with vols generally easing (Chart) and BTC risk reversals turning up from -7% to -2% before settling around -5% as we head into FOMC (Chart).
1/ The violent sell-off on Saturday saw BTC trade to 42,333 lows, a hefty 39% drawdown from 69,000 highs. 🧵👇
2/ The result of weekend illiquidity against a risk-off overhang from Omicron fears, inflation concerns, the possibility of an accelerated taper and also weakness in the Chinese stock market.
3/ The China factor stands out for us as funding rates on Chinese-dominated exchanges like Huobi, OKEX and BYBIT continue to be very negative in spite of the bounce in spot off the lows.
1/ Hello from Miami! Point-form summary this week with some insights from our meeting with Paul Tudor Jones. 👇🧵
2/ - Our short vol view on BTC and ETH from last week has worked very well. Both BTC and ETH vols have dropped around 5-10% (week-on-week BTC price remains at 56,000 level).
3/ - We turned long a massive amount of gamma from the month-end expiry on Friday. Gamma realised very well because of the knee jerk reaction to the Omicron headlines as well as Powell’s recognition of high inflation and indication of an accelerated taper.
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. Here’s a quick timeline. 🧵
2/ 10 November: Shock US inflation print at 6.2%, the highest since November 1990, creates a ‘risk-off’ 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 VenEck’s proposal to launch a physical Bitcoin ETF.