Crypto Options Analytics, April 21st, 2024
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Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.
Authors have holdings in BTC, ETH and Lyra and may change their holdings anytime.
Math-minded people here, pardon any typos.
Tuesday 9:45am - PMI
Thursday 8:30a - GDP
Friday 8:30a - PCE
Macro Recap
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.
See the CME FedWatch Tool below.
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.
Paradigm's Week In Review
BTC -1.99% / ETH -1.48% / NDX -5.86%
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BTC
ETH
The Squeethcosystem Report
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.
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