June 3, 2024
USA Week Ahead:
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Monday 9:45a & 10a: Manufacturing PMI & ISM
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Wednesday 8:15a: ADP employment
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Friday 8:30a: NFP employment report
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
The Fed’s next FOMC meeting is scheduled for June 11-12 and last week’s release of the “Beige Book” provided key insights into the Fed’s thinking.
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10/12 Fed regional banks report modest growth while two reported no change.
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“Price growth is expected to continue at a modest pace in the near term,” the Fed said
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More labor is available and wage growth continued to slow. Pay is reverting to lower pre-pandemic norms.
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Political uncertainty is hurting the economy.
In response longterm rates moved slightly higher week-over-week while the stock market had a volatility end-of-week.
This week we have the non-farm employment report release on Friday. Labor (along with CPI/PCE) is one of the main economic releases that the data-driven Fed relies on.
Commodities are still having “inflationary” like moves despite the move lower in precious metals week over week.
finviz.com
Inflationary dynamics, if persistent, in my mind strengthen the macro-fundamental picture for crypto currencies.
Political uncertainty, another theme from the Fed’s “Beige Book”, also sounds bullish for non-government decentralized crypto-money.
Lastly, I view the ETH SPOT ETF decision as very bullish for industry-specific crypto fundamentals.
Although, this bullish theme was tamed slightly when the Biden Administration vetoed SAB 121.
BTC: $67,599 (-1.7% / 7-day)
ETH :$3,769 (-2.1% / 7-day)
SOL :$162.28 (+0.3% / 7-day)
Reflecting on SAB 121, the core issue is the current SEC guidance.
Currently TradFi banks who’d want to start business as custodians for crypto customers (like they do Fiat) is now too cumbersome and expensive in terns of regulatory compliance.
If Spot ETFs are bullish, depositing crypto alongside fiat at regular banks, is ultra-bullish.
The market wasn’t ready for it yet.
Looking at the current market positioning, I don’t think things are anywhere frothy like they were in late March/early April.
Chart: BTC 90-day Basis
Chart: ETH 90-day Basis
We can clearly see that the futures basis is much lower than around peak positioning and the underlying OI buildup is rather stable for BTC.
Chart: BTC ∆1 Derivatives OI
What’s interesting is the ETH ∆1 futures/perp OI buildup. We naturally saw a jump in futures OI with the surprise SPOT ETF approval, enough to make new YTD OI highs, but what’s fascinating is the relative lack of CME OI for ETH compared to BTC.
Chart: ETH ∆1 Derivatives OI
The US institutional ETH exposure (proxied by CME OI) is lackluster.
This is either bullish or bearish
- Bullish: Lots of room for US institutional allocation
- Bearish: Lack of interest from US institutions
Chart: Weekly ETH Spot (Finviz.com)
My initial reaction and bias is for spot ETH to test new ATH’s like BTC, on the backdrop of similar industry-fundamentals.
However, given the quick ETH futures/perps OI buildup and lack of follow-through, I’m wondering if that OI could just as quickly unwind, sending prices lower.
Chart: ATM Term Structure ETH & BTC
Chart: June Quarterly Expiration Skews ETH & BTC
From a volatility perspective, ETH is currently pricing in “follow-through” in terms of skew and an overall more expensive implied volatility. Again, disappointing buyers with the lack of continuation higher in spot ETH.
Chart: Relative DVOL Ratio (ETH DVOL / BTC DVOL)
The spike higher in implied volatility was fast an pronounced, sending ETH DVOL to trade +32% over BTC DVol.
This makes me think the move is a clear “fade-trade” opportunity.
Given my slightly-bullish delta bias and short ETH relative vol bias… I would likely do something like the famous ETH Call Overwriter strategy here (we can’t forget his trade-flows have an IV impact).
- Buy ETH
- Sell CC on ETH
- Use CC proceeds on ETH to buy BTC outright calls or BTC Call Spreads.
Lastly, long-dated call spreads still have my interest due to the prospects for futures basis expansion.
Paradigm's Week In Review
BTC -2.02% / ETH -0.25% / NDX -1.62%
Paradigm Top Trades this Week 👇
Weekly BTC Cumulative Taker Flow 🌊
Weekly ETH Cumulative Taker Flow 🌊
BTC Cumulative OI
ETH Cumulative OI
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BTC
ETH
The Squeethcosystem Report
Crypto markets remained active, ending the week down. ETH ended the week -3.43% and oSQTH ended the week at -8.93%.
Volatility
oSQTH IV remained relatively firm this week, ending in the 60s.
Crab Strategy
Crab saw slight declines ending the week -0.14% in USDC terms.
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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.
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