Crypto Options Analytics, March 17th, 2024: Leverage, Options, & Bullish Trends

USA Week Ahead:

1. Wednesday 2pm - FOMC rate decision and Press Conference

2. Thursday 12pm - Fed Governor speaks

3. Friday (Throughout) - Fed Governors speak

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 Recap

On Tuesday of last week, the CPI print came in at +3.2% (vs 3.1% forecast) but the market expects the Fed to be “on-track” to cut rates later this year, by as much as three separate times. 

This upcoming week, we will have the Fed rate decision followed by Powell’s press conference. This will give us more insight into whether the Fed is still seeing rate cuts on the horizon this year.

Rates moved higher W/w on the back of hotter-than-expected CPI and PPI numbers.

Chart: ustreasuryyieldcurve.com

The strong economy and higher than anticipated inflation continue to be reasons for the Fed to remain hawkish without much push-back. 

This upcoming week will be important to understand how the Fed is reading the most recent data into their rate roadmap. 

BTC: $68,070 (-1.7% / 7-day)

ETH :$3,615 (-7.0% / 7-day)

SOL :$199.41 (+38.5% / 7-day)

Last week we noted how expensive “leverage longs” had become for both BTC and ETH. Perp funding, futures basis, option skew, and overall IV levels were all reaching recent extremes.

Chart: 90-DTE Futures Basis

Although the 90-day basis remains rather elevated, option markets have come down quite a bit W/w, led by short-term expirations.

Chart: Drop in short-term IV W/w

Chart: 7-DTE RR-Skew leads the way lower

These conditions have softened somewhat but any prolonged spot price consolidation or retracing will likely continue to flush out leveraged long exposure from the market and reset these “costs” even lower.

This is my base-case scenario for the upcoming week.

The market moved higher quickly and likely requires some short-term “reset”.

In the long term, we’re seeing interesting themes that support the prospect of a bull-market continuation.

Chart: Coinmarketcap.com BTC Dominance

Historically, bull-markets eventually see out-performance from higher Beta assets vs BTC. This means that the current BTC dominance ratio of about 51% likely has room to run lower as small cap assets out-perform in the later stages of a bull-market. 

Since we are NOT quite there yet, I believe this measure supports the notion that we are still early in the bull-run journey. 

There is a strong counter-argument to a diminishing BTC dominance ratio and that surrounds the prospects of the ETH ETF failing to pass. 

Although there are several outstanding applications for a Spot ETH ETF, Bloomberg ETF analyst Eric Balchunas said there were more than a few reasons he’s now downgraded the chances of Ether ETF approval to just 35%. Balchunas also believes SEC Chair Gary Gensler’s stance on Ether could also play a part, arguing that Gensler still thinks of Ether as a security. - CoinTelegraph

If there are no other ETFs beyond Bitcoin, this could lead Bitcoin to actually GAIN market dominance during this upcoming bull-market.

This would likely be a necessary prerequisite to the sell-side liquidity crisis scenario for BTC, which could cause prices to melt-up astronomically, along with explosive volatility.

Click Image for Story

This very real possibility of a sell-side liquidity crisis makes call wing-tail risk a valuable asset to own, but timing the event is key, especially given the current price of “leverage long” exposure being so elevated. 

A drop in RR-Skew, overall IV, and futures basis will evaporate the value of any long tail OTM call options. So keep this in mind... This scenario is not an easy one to trade, outside of being long the spot market. 

Paradigm's Week In Review

BTC -0.07% / ETH -4.83% / NDX -0.32%

Paradigm Top Trades this Week 👇

Weekly BTC Cumulative Taker Flow 🌊

Weekly ETH Cumulative Taker Flow 🌊

BTC Cumulative OI 

ETH Cumulative OI

As always, you can hit us up from the below 

Hit us up on Telegram! 🙏

Paradigm Edge: Daily Commentary✍️  http://pdgm.co/edge

24/7 Support: http://pdgm.co/tgsupport

Sign up now! 👉 https://pdgm.co/3BLEw1Y

BTC

ETH

The Squeethcosystem Report

Crypto markets found some selling this week. ETH ended the week -13.86% and oSQTH ended the week -28.23%.

Volatility

oSQTH IV continues to remain active, trading down to 100 before closing near 126%.

Crab Strategy

Crab saw gains ending the week +5.06% in USDC terms.

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

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.