AD Derivatives Newsletter: Ethereum & Bitcoin Show Lower Volatility

USA Week Ahead:

1. Monday: Fed Governors Speak

2. Tuesday: Fed Governors Speak

3. Friday: Fed Governors Speak

4. Tuesday 9am: S&P Case Shiller Index

5. Thursday 8:30am: GDP (2nd Revision)

6. Friday 8:30am: 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

Strong economic data has forced yields higher and precious metals lower on Friday. 

This continues to stand in the way of digital hard-assets like Crypto. 

This week we have multiple Fed Governors speaking, GDP and most importantly PCE on Friday (the Fed’s favourite inflation indicator).

Chart: Gold Prices 15min Chart (ThinkOrSwim)

Outside of these items, most of the focus this week will be how crypto continues to perform given the down-trend in volatility and the inability for crypto to rally on good news. 

BTC: $64,018 (-3.4% / 7-day)

ETH :$3,468 (-3.8% / 7-day)

SOL :$130.28 (-11.7% / 7-day)

ETH

Ethereum has had a string of positive fundamental news catalysts. 

1. On June 19, 2024, the United States Securities and Exchange Commission (SEC) closed its investigation into whether Ether should be classified as a security. (more here) 
2. ETF analyst Eric Balchunas thinks ETH ETF trading could start by July 2nd (more here) 

But despite the positive fundamental news, spot prices just can’t seem to hold onto their recent gains.

Chart: Finviz.com ETH SPOT

Looking at the gamma positioning of dealers, we can see dealers are now back to neutral exposure after a wave of vol buying from the street.

Mid-May’s ETH ETF spike caused dealers to hit negative gamma exposure… but now things are back to neutral. 

Breaking apart the strike profiles of dealer positioning we can see ATM and near money calls are owned by dealers. 

However, at $4,000 things get really interesting. 

Looking at the block flows this week, we see a ton of buying activity for the September $4,000 calls.

Massive OI buildup as traders buy the $4,000 calls, betting if ETH gets above $4k we likely test and breakout new all-time-highs. 

However, until we get through $4k, I suspect vol heads lower and spot prices retrace their post ETF spike gains… potentially testing $3k and below once more. 

BTC

Looking at Bitcoin realized volatility we’re seeing a continued grind lower as 30-day RV is below the 25% percentile. 

We can see a consistent trend lower beginning in May of this year. Remember low-vol zones can stick around a long time. 

I think this trend likely continues to lower volatility in the short-term and medium-term, now that a lot of the recent excitement has faded-away.

Month-over-month, the term structure has not only shifted lower but also steepened a lot in terms of Contango. 

Given the current VRP being about 12pts and relatively stable, my bias is to sell optionality as opposed to owning it for the summer 2024 trade. Enjoy term-structure roll-down, stagnant markets and a decently high VRP.

Paradigm's Week In Review

BTC -3.53% / ETH -2.65% / NDX +0.22%

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 down. ETH ended the week -5.74% and oSQTH ended the week at -13.22%.

Volatility

oSQTH IV was active this week trading in a lower range, in the 60s, and higher range of 90s just to end in the 70s.

Crab Strategy

Crab saw slight declines ending the week -0.29% in USDC terms.

Twitter: https://twitter.com/opyn

Discord: discord.gg/opyn

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.