Recurring market commentary on what’s happening in the crypto markets, summarized by the Crypto Broker team at Crypto Finance AG.
Market commentary
Good Morning!
At the time of writing, Bitcoin (BTC) is trading at $40.6k (-3.97% in 7 days), Ethereum (ETH) is trading at $3k (-3% in 7 days), and the spread ETH/BTC is trading at 0.074 (-0.86% in 7 days).
So far, 2022 has been a year of mostly unattractive and low-tier pricing for digital assets. Uncertainty about the legal/regulatory framework, coupled with a hostile macro environment (inflation, Russia/Ukraine, etc.) is pushing people to stay on the sidelines and wait for events to decouple.
Correlation with traditional markets
Here are short facts about the Bitcoin correlations:
- The trading volumes of BTC and ETH are now positioned at the bottom 25% of the 5-year transactions.
- BTC has been performing as a growth-oriented risky stock for many months (30d beta and correlation with NASDAQ:QQQ are 1.19 and 0.68 respectively).
- Most cryptocurrencies are returning beta times bitcoin.
- Then again, with stable betas, pair trading and coinintegrated portfolios are attractive from a low to medium frequency trading perspective.
Bitcoin TA
The BTC 1d Heikenn Ashi candles chart called a buy on the evening of Monday, April 25th, after having called a sell on April 21st as the open-close spread was very tight. Major technical indicators, both oscillatory and moving averages, are in favour of a sell. In this low volatility environment (seeing as how there are neither positive nor negative news), I am happy to buy at $38k-$39k and sell at $41k-$42k. Looking at the Volume Profile Visible Range (VPVR):
- Support: $38k-$40k
- Resistance: $47k-$50k
Delta neutral strategies
Open Interest (OI) is stable WoW, with Binance covering nearly 30% of CEXs aggregate OI. As leverage continues to be low, the 3-month annualised rolling basis is trading at 1.98% on the CME, and funding rates are negative on most exchanges with the exception of Binance.
Interesting here is getting perpetual long positions on exchanges such as FTX (1-month annualised average funding rates: -19%) and short on Binance (1-month annualised average funding rates: +35%). Over the past month, this strategy would have yielded approx 4.5% - or 54% annualised (without considering fees/cost of capital/etc.) Of course, this strategy is not without risk since the two perpetuals are not fungible. The inclusion of this strategy on the one hand therefore leaves you market neutral (BTC neutral). On the other hand, it leaves you short USDT USD, and exposed to the risk of funding rates. Also note that funding rates are paid hourly on FTX and every eight hours on Binance. It is set to be powered by 0x, a decentralised exchange liquidity aggregator.
Options markets
The term structure of ATM IV is trading a little higher in the very front-end, while the back-end is almost unchanged. The overall ATM IV is still very compressed, and the IV is 50% on the front-end and 65% on the back-end. As I have said in the past, although I think buying vol now is a good deal, it is important to keep two things in mind:
- 1. Many traders/MMs are using BTC and ETH options as a proxy to hedge DOV trades, thereby compressing volatility and making historical volatility levels unlikely to be displayed again.
- 2. Time-decay on medium/long-term options is likely to eat up most of the profits.
The IV/RV spread is quite narrow and many traders are placing short strangles that hold the spot at $38k-$42k. Then again, options traders reacted to spot price actions during the week as follows:
- BTC/USD above $41k: buy OTM call spread call and diagonal calls
- BTC/USD below $40k: iron condor/short strangles and puts protection the OI profile once again suggests that $40k is a magnet. At least, short gamma positions by MMs are not difficult to manage.
Happy Trading!
All intellectual property, proprietary and other rights and interests in this publication and the subject matter hereof are owned by Crypto Broker AG including, without limitation, all registered design, copyright, trademark and service mark rights.
Disclaimer
This publication provided by Crypto Broker AG, a corporate entity registered under Swiss law, is published for information purposes only. This publication shall not constitute any investment advice respectively does not constitute an offer, solicitation or recommendation to acquire or dispose of any investment or to engage in any other transaction. This publication is not intended for solicitation purposes but only for use as general information. All descriptions, examples and calculations contained in this publication are for illustrative purposes only. While reasonable care has been taken in the preparation of this publication to provide details that are accurate and not misleading at the time of publication, Crypto Broker AG (a) does not make any representations or warranties regarding the information contained herein, whether express or implied, including without limitation any implied warranty of merchantability or fitness for a particular purpose or any warranty with respect to the accuracy, correctness, quality, completeness or timeliness of such information, and (b) shall not be responsible or liable for any third party’s use of any information contained herein under any circumstances, including, without limitation, in connection with actual trading or otherwise or for any errors or omissions contained in this publication.
Risk disclosure
Investments in virtual currencies are high-risk investments with the risk of total loss of the investment and you should not invest in virtual currencies unless you understand and can bear the risks involved with such investments. No information provided in this publication shall constitute investment advice. Crypto Broker AG excludes its liability for any losses arising from the use of, or reliance on, information provided in this publication.
