AD Derivatives Newsletter: Powell Signals Cuts & Bitcoin Momentum

USA Week Ahead (ET):

1. Tuesday 9:00a - S&P Case-Shiller Home Price Index

2. Thursday 8:30a - GDP (2nd Revision)

3. Friday 8:30a - Core PCE

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.

MACRO

Last Friday we had Powell give his speech in Jackson Hole Wyoming. For the first time, Powell signaled that a shift towards rate CUTS has finally come. 

He said the Fed doesn’t desire any more cooling in the labor market. This is especially important given the Wednesday BLS employment revision that reduced 12-month job creation by -818,000 jobs. 

Keep in mind that the Household survey, which is independent from the Payroll calculation method, had been diverging from payrolls consistently… signaling this potential revision!

None-the-less, this is tied for the BIGGEST downward revision on record (2009 had a -824k revision). Seems sketchy!

Regardless, all the more reason to expect a cut on the September 18th FOMC meeting. 

Chart: CME FedWatch Tool

The CME FedWatch tool is currently pricing in a 25bps cut with 64% probability and 36% probability for a 50bps cut.

The FOMC minutes on Wednesday also showed that almost all Fed officials were on-board for a September rate cut. 

The biggest economic number this week will be Friday’s PCE inflation number. Given everything that’s “baked-in” I expect this number to be a non-event. 

Lastly, on the crypto front, the DNC had very little crypto policy discussions and mentions. As speculated in our newsletter last week, we might have set the Bitcoin bottom throughout the rest of the year… as Kamala changes of winning drop and the rate easing cycle begins. 

The election remains uncertain of course, but this could be a decent “base-case scenario” to navigate trading in this election cycle.

BTC: $64,315 (+7.9% / 7-day)

ETH :$2,780 (+4.4% / 7-day)

SOL :$161.28 (+10.0% / 7-day)

Crypto

Chart: BTC/USD - Finviz.com

Bitcoin finally found its footing again last week and it’s currently headed back higher towards the $70k range. 

Chart: BTC 7-day IV/RV

As Bitcoin headed higher last week, both implied and realized volatilities dropped lower.
IV and RV are currently back to fair value and pricing in no VRP. 

Chart: BTC Spot/Vol correlation Scatter Plot 

What’s interesting is the “U-Shaped” spot/vol correlation scatter plot. 

We can see that we’ve experienced BOTH positive and negative spot/vol regimes in the recent past. 

Chart: BTC SPOT and DVOL

Looking at the time-series data of BTC spot prices and the DVOL volatility index, we can clearly see that early July has a positive “Spot/Vol” regime while the august BOJ hike panic, caused a negative “spot/vol” regime. 

I view the BOJ hike panic as a “burn the brush” moment for positioning. Meaning investment funds (crypto and elsewhere) had their books reset. 

I don’t expect crypto volatility to spike that high again for a while, my base-case scenario into EOY is a controlled grind higher. 

Higher prices, lower volatility. 

Chart: ETH/BTC Ratio Finviz.com

The ETH/BTC ratio trend continues to long decidedly lower, with no real reason to believe otherwise. 

ETH volatility also has a premium to it currently, with the entire term structure trading at a premium to BTC. 

We can see here that the ETH DVOL premium has almost returned to highs. 

Given all these base-case scenarios (Lower crypto IV, higher crypto prices into EOY, underperformance from ETH vs BTC) there could be an interesting trade. 

Using ETH to sell implied volatility. 

Using BTC to buy implied volatility. 

Using higher IV in ETH to capture EOY BTC outperformance… something like that!

Paradigm's Week In Review

Paradigm Top Trades This Week

Weekly BTC Cumulative Taker Flow

Weekly ETH Cumulative Taker Flow

BTC Cumulative OI

ETH Cumulative OI

BTC

ETH

The Squeethcosystem Report

Crypto markets remained active, ending the week positive. ETH ended the week +5.39% and oSQTH ended the week at +8.52%.

Volatility

oSQTH IV is 40.47% vs. its ref vol. at 60.59%.

Crab Strategy

Crab saw gains ending the week +2.71%.

Opyn Twitter: https://twitter.com/opyn

Opyn Discord: discord.gg/opyn

PowerTrade Weekly Altcoin Option Flow Recap

PowerTrade saw over $27M in altcoin option notional trade this week. Total altcoin option open interest stands at over $30M. 

The trading activity was focused on SOL (48% of trades), TON + XRP (13% each), BNB + MATIC (9%), with the rest across ARB, BCH, DOGE, FIL, LTC, PEPE and NEAR. 

67% of trades were vol buyers with calls outnumbering puts by 62% to 38%. 

The largest 5 trades were

Seller of BNB 25 Aug $600 Calls

Buyer XRP 6 Sep $0.6 Puts

Buyers and sellers of MATIC 30 Aug $0.5 Calls

Seller of BNB 6 Sep $580 Puts

Buyer of SOL 30 Aug $170 Calls

PowerTrade has now the industry leading altcoin offering in terms of number of markets covered, top of book liquidity and bid offer spreads.

We offer 24 altcoin option markets (ADA, APE, ARB, AVAX, AXS, BNB, BCH, DOGE, DOT, ETC, FIL, GALA, INJ, LINK, LTC, MATIC, PEPE, SHIB, NEAR, SOL, SUI, TON, WLD, XR) with order book and block trade liquidity via our RFQ (request-for-quote) interface. Clients can execute single or multi-leg option block trades with best pricing across any CEX or DEX. 

An example of our aggressive bid offer spreads was evident yesterday in TON options. While other exchanges were showing TON ATM vol yesterday 80 vols wide, our market-makers were quoting 15-20 vols wide on an asset that was moving 15%. 

Get in touch with Bernie (email bernd@power.trade, TG: berny_the_blade), PowerTrade´s Chief Commercial Officer for a more detailed discussion of our altcoin option offering.. 

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.