An overview of the trading activities on the cryptomarkets. Studies on traded volumes, supply and demand situations, as well as periodic technical analysis of the most important crypto-currencies and indices, including the perspective of professional Traders.
Technical Analysis
Good Morning!
As of writing, Bitcoin (BTC) is trading at 38,655 USD (+4.43% in 7 days), Ethereum (ETH) is trading at 2,758 USD (+9.23% in 7 days), and the spread is trading at 0.071. Trends do not look very promising right now: cryptocurrency market cap jumped from 2.893T US-Dollar on November 8th 2021 to 1.769T US-Dollar today (down -38.85%), the S&P500 is down -5.27% in one month, Nasdaq -8.27% in one month and the Volatility Index (VIX) is trading at 24.86.
The probability of a 50bps rate hike in March - recovered from the FED Funds Futures - is now at 15%; prior to the last FOMC meeting, the probability was 6%. The last time a 50bps rate hike occurred was in May 2000. BTC Futures Open Interest is $14.7B (as of mid-August 2021), BTC Futures Annualized Rolling 3mth Basis on CME is 2.68% (6-month average: 5.23%), and funding rates are slightly negative on all the exchanges.
As for options:
BTC options open interest is $6.6B (same as in August 2021), 3-month BTC At-The-Money (ATM) implied volatility is trading at 67.5% (6-month average: 84.9%), 3-month BTC 25D Skew is trading at 9%, and the most popular strikes are:
- 40k US-Dollar (18.2k contracts, put/call ratio: 0.456);
- 50k US-Dollar (14.6k contracts, put/call: 0.18);
- 30k US-Dollar (12.2k contracts, put/call ratio: 0.99).
If skew traders are making the most of their profits by riding the rapid changes in term structures, and increasing the selling pressure on the futures market by selling perpetuals, I believe that now is the time to play a different game. Implied volatility is currently really cheap, positive skew is not sustainable in the long run, and continuous coverage via put is expensive.
What makes the most sense to me now is to buy volatility. One way to do this is to buy a long-term call option combined with a short futures position, which allows you to acquire both a positive basis yield and a reversal of the skew. Implied volatility and realised volatility typically converge, so that an increase in IV will be followed by an increase in spot volatility. As the IV will be led by long calls, higher implied volatility will result in a potential rally. I, therefore, expect spot prices to rise along with the basis. But only time will tell.
Happy trading!
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