August 28, 2023
USA Week Ahead: ET Timezone
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Tuesday 9:00am - S&P Case-Shiller home price index (20 cities).
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Wednesday 8:15am - ADP Employment.
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Wednesday 8:30am - GDP Revision.
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Thursday 8:30am - PCE.
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Thursday 8:30am - NFP.
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.
Math-minded people here, pardon any typos.
MACRO THEMES:
Jackson Hole
Last week we had more clarity from Jerome Powell as he spoke at Jackson Hole WY.
The TL:DR is that the Fed remains “data dependent”, while JP finds that the inflation process “still has a long way to go, even with the more favorable recent readings.”
Chair Powell said The Fed is prepared to raise interest rates further if needed and intends to keep borrowing costs high until inflation is on a convincing path toward the Fed’s 2% target.
Two months of good data are only the beginning of what we need to build confidence on inflation path.
A key insight from JP is that “getting inflation back to 2% likely requires below-trend growth”, meaning he isn’t afraid of some pain to the economy and jobs market.
Upcoming week
NFP data on Friday and PCE data on Thursday are two KEY insights into the latest readings that a “data dependent” Fed is looking for.
Outliers are likely to move markets either way, while anything “in-line” will be a good excuse for equity vol to give back some of its recent gains.
US Rates
US long term rates have been on a tear higher lately; this activity is a big driver of equity market weakness.
Last week, we had a massive NVDA earnings beat… but the price action quickly faded back down.
That type of price action is a good insight into rates, equity weakness, and perceptions of a hawkish Fed.
Gold Vol
One last thing I want to keep an eye on (in macro world) is Gold vol. Like crypto vol, Gold vol has been extremely weak lately. We’re near 10-year lows (just like crypto).
If BTC is digital Gold, maybe looking at IV for these two assets side-by-side makes some sense.
BTC: $25,996 (-0.5% / 7-day)
ETH :$1,649 (-2.0% / 7-day)
When BTC broke lower from $29k → $26k, volatility finally found the ability to explode higher.
Now, surprisingly, that IV pop was quickly sold back down as BTC has been able to hold around $26k with stability.
We can see that spot only moved -50bps week-over-week.
That said, there’s a TON of interesting “contradictions” (for the lack of a better word) being priced in the market right now.
First, as IV was sold back down, the term structure steepened back near pre-crash Contango levels.
Fine, that makes sense, I guess we’d expect that, but look below.
Despite IV dropping back to lows and the term structure steepening again, the convexity of the wings remains extremely expensive.
Looking at the BTC butterfly index, we can see that wings are near the upper 90% percentile (red horizontal line).
So,outright IV seems confident in spot price consolidation; traders are still paying up for tails.
Another fascinating phenomenon is the BTC and ETH relative volatility profile.
YTD BTC has been the leader in positive spot/vol moves… meaning, when spot rallies, BTC IV becomes more expensive.
On the downside, however, ETH IV has been more expensive.
So despite outright BTC IV fading lower, ETH IV remains relatively expensive… meaning the “crash risk” is still being bought, via relative vol.
TL:DR
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Outright IV back to low levels.
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Contango steep again, as front-end vol becomes the cheapest.
BUT
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Curvature in the wings remains expensive.
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ETH/BTC relative vol is back to post-SVB highs.
Something probably needs to give…
PROPRIETARY “GVOL-DIRECTION” FLOWS - @Gravity5ucks
Good weekly volume on Bitcoin despite the lack of price action. More apathetic: the flow on Ethereum.
Interest in taking positions is well highlighted in its differences with the weekly summary of trades blocks vs Deribit-on-screen (DSOB).
As for the block trades, we note a roll-down-forward of calls with buy-to-close of SEP $31k and sell-to-open OCT $29k (net premium received of over $800k).
The trade sums up the general sentiment well.
To counterbalance, however, there is the delta long interest for the $27k strike on multiple maturities < 40 DTE.
DSOB trades were dominated by long call positions, with over $180k vega, and premium paid of over $6M.
Aggressive on-screen buys of at-the-money DEC $26k and JUN24 $27k calls concretely impacted volatility, with a lift of 3% in few minutes.
Paradigm Block Insights
👉 BTC continues correlation with S&P 500.
🎢 NVDA excitement furthering the AI-led equity run.
🏦 Higher for longer mantra out of Jackson Hole.
BTC +0.5% / ETH -0.9% / NDX +1.0%
🌊BTC
Near dated focus over the week with JH and ETF bets being placed. Drawdown Tuesday saw BTC aggregate Open interest take a hit and traders bid for downside protection via outrights and bearish risk reversals.
1. 1026x 25-Aug-23 27000 Call bought.
2. 1000x Cstm: +1 Put 29-Sep-23 20000 -1 Call 29-Sep-23 30000 +1 Call 29-Sep-23 35000 bought.
3. 775x 29-Sep-23 24000 Put bought.
4. 595x 27-Oct-23 23000/20000 Put Spread bought.
5. 560x 1-Sep-23 27000 Call bought.
🌊BTC (continued)
Interesting execution style for long dated vol buyer on Wednesday evening. June BTC vols were up 4% around 7pm UTC. Someone keen to get long vega was on screen lifting considerable size.
560x June 27k Calls bought on screen at 51v. Total amount through the day was 1100x.
Execution style was questionable. We’ve got some questions.
🌊ETH
Mixed flows in ETH over the week. Blocks dominated by outright C/P buying in the near end.
1. 9250x 29-Sep-23 1600 Put bought.
2. 7500x 29-Dec-23 1800 Call bought.
3. 7250x 27-Oct-23 1500 Put bought.
4. 6435x 25-Aug-23 1700 Call bought.
5. 4600x 27-Oct-23 1900 Call bought.
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BTC
ETH
The Squeethcosystem Report (8/20/23 - 8/27/23)
Crypto markets found their floor this week, ending the week relatively flat. ETH ended the week -1.34%, oSQTH ended the week -4.70%.
Volatility
oSQTH IV saw declines this week from the low 70s into the upper 40s.
Volume
The 7-day total volume for oSQTH via Uniswap oSQTH/ETH pool was $174k.
August 22nd saw the most volume, with a daily total of $102.30k traded.
Crab Strategy
Crab came back with vengeance this week, ending the week +0.74% 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.
