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AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.
On Tuesday, Powell spoke and mentioned that although inflation had come down significantly last year (especially in H2), current progress on inflation isn’t materializing as hoped.
He said that current rates seem restrictive enough and if inflation remains high, they will hold rates at this level for a while more (higher for longer). He also mentioned that should the employment situation worsen they have significant room to maneuver rates lower.
This makes the PCE release Friday, which is the Fed’s favorite inflation target, as something especially worth paying attention to.
The markets continue to reprice June FOMC towards a hold from 50% → 75% → 83% over the past three weeks respectively.
We had a massive market reaction to the Iran & Israel conflict on Thursday last week, which caused bond futures to relief rally on the event momentarily, a counter-trend move.
Gold continues to trend higher despite bonds trending lower. Gold volatility is also historically on the higher end of the range (despite moving lower w/w) at 18.51. This is currently matching SPX vol at 18.71. This high Gold volatility and divergence from real rates is somewhat interesting.
Tech stocks (AI especially) dropped a lot Friday, this type of reaction could continue to bring VIX up even higher. The market seems uneasy here.
BTC: $64,762 (+1.5% / 7-day)
ETH :$3,148 (+2.7% / 7-day)
SOL :$149 (+5.4% / 7-day)
Bitcoin delta-one products continued to deleverage last week.
The basis saw a continued grind lower and the perp funding on Deribit flipped into the negative territory for the first time in months.
Liquidation volume has also subsided.
This makes me think that a lot of the leverage in the market has been removed, allowing for the market to rebuild itself on better footing.
From a fundamental perspective, bullish Gold events have historically been bullish for Bitcoin as well (SVB, Ukraine, Israel, Fiat debasement). Given the current trend higher in Gold, I think BTC likely will follow now that leveraged positioning has reset.
The 60k-70k range might take some time to work through and given the lack of leverage in the market now, we could argue that volatility will drop, especially now that halving has passed.
Realized volatility is near the maximum range of the past 12-months… so I wouldn’t be surprised to see it “relax”, while the implied volatiliy (below) is high compared to recent history.
Option ∆25 risk-reversal skew is recovering nicely for short-term options while the longer term options have been consistently positive throughout the current turbulence.
Overall, given the current volatility levels (both realized and implied) and the potential 60k-70k spot price ranging… my bias is towards short-vol structures here as opposed to long-vol in this environment.
Crypto markets remained active throughout the week, but little to show for on WoW returns. ETH ended the week -0.53% and oSQTH ended the week at -2.71%.
Volatility
oSQTH IV found its way lower throughout the week ending in the 90s.
Crab Strategy
Crab saw gains ending the week +1.65% in USDC terms.
The impact on bonds from the CPI headline numbers were then compounded by a very poor 10-year auction. This auction was one of the weakest in history in terms of bid-to-cover and lackluster foreign demand. This is possibly the worst case scenario as the US grows its spending and funding needs astronomically.
The combined effects of weaker demand and greater supply for treasuries is a 2-sided effect that doesn’t bode well for us, especially if the US becomes even more financially and militarily entangled around the globe.
This brings us to the last event seen last week, geopolitical risk in Iran.
Gold markets reacted heavily by capitulating to $2,445 with gold vol exploding to nearly 24% intraday and settling in the 20% handle.
BTC: $64,070 (-8.7% / 7-day)
ETH :$3,067 (-9.4% / 7-day)
SOL :$138.41 (-23.9% / 7-day)
Playing the basis reflation and strong fundamentals
This week BTC and the rest of crypto had a large risk-off moment as prices came screaming lower.
The weekend risk proved to be real as liquidations saw extremes.
As we’ve mentioned recently, the buildup in leveraged longs and the associated impact on basis showed a vulnerable market despite the strong fundamentals (ETF flows, halving).
The market was largely long and everyone seemed positioned on the same side.
This type of market reset is actually very constructive. We can see that basis finally puked lower and futures OI has come down as well.
This allows for markets to re-establish fresh long exposure when ready.
The fundamental picture has only become stronger, not weaker.
Middle East conflict and war has historically be bullish for BTC (October 2023, Ukraine/Russia war, etc).
CPI/Inflation appearing stickier than expected, making BTC an even more attractive Fiat alternative.
Plus the other existing fundamental points:
BTC halving
ETF demand and adoption
In my opinion, there’s an interesting opportunity to structure BTC option exposure here. We can see that the week-over-week term-structure has twisted.
Short-term IV is much higher
Long-term IV is lower
This is further confirmed by the term-structure richness chart shown below, displaying 5-years of past data.
My base-line thesis is that short-term volatility is going to disappoint as BTC halving isn’t a true “vol event” painted with uncertainty.
While long-term BTC longs will come back to the market and push funding/basis back up, which means that the premium in long-term futures will return into the market, making calls more valuable.
Above we can see that the 6-month $ value of basis has dropped from about $8k it’s peak to $3.5k today.
To me, the opportunity here is something like a Vertical-roll.
For example:
-1 Call-Sread: 4/26 72-80k (-14∆/+$700 credit)
+1 Call-Sread: 12/27 80-100k (+14∆/-$4.5k Debit)
As the halving comes and goes, I’d expect the short call-spread to expire worthless while fundamentals that support a longer-term rally will also be associated with new leverage longs benefiting the call-spread with extra juice from the basis.
AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.
AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.
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AD Derivs. Podcast (Ep. 55) - Antonio Juliano, Founder and CEO @dYdX
dYdX is a leading decentralized exchange that currently supports perpetual trading. dYdX runs on smart contracts on the Ethereum blockchain, and allows users to trade with no intermediaries.
Today we chat with Juliano, the founder and CEO of dYdX. We explore Juliano's background, the evolution of dYdX and the vision for dYdX V4.
Website: https://dydx.exchange/
AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.