AD Derivatives Newsletter: FOMC, Macro Trends & Crypto Market Insights

USA Week Ahead (ET):

1. Wednesday 2:00a - FOMC Rate Decision

2. Wednesday 2:00a - FOMC Powell Press Conference

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 week, on the macro front, we saw a continued downtrend in CPI with the latest release on Wednesday.

CPI came in at 2.5% year-over-year, compared to the expected 2.6%. Core inflation matched expectations at 3.2%.

The stickiest component of the current inflation reading has been shelter (housing) costs. Economists view this as sticky because rents are typically renegotiated once per year.

Wage inflation has continued to decline, along with oil and other commodity prices.

This sets the stage for a very interesting FOMC rate decision this Wednesday.

Charts: CME FedWatch Tool 8/25

We can clearly see that the markets have now shifted towards a higher probability of a 50 bps cut, rather than a 25 bps cut, compared to three weeks ago. 

The precious metals markets are experiencing a large rally in response, with Gold reaching new all-time highs, Silver breaching $30/oz, and Platinum surpassing $1,000/oz.

These dynamics also favor Bitcoin, which rallied by 8% last week.

The Presidential debate had a mixed impact on Bitcoin. With Kamala "winning" the debate, we can expect more inflationary policies from her administration (such as support for small businesses, home buyers, child credits, etc.).

While a Kamala presidency is bullish for hard assets, skepticism remains regarding her policies towards crypto.

This tempers the bullish sentiment for Bitcoin and is even less favorable for Ethereum, which is more sensitive to regulatory pressures due to its reliance on DeFi innovation.

I expect ETH to continue underperforming relative to Bitcoin under such a scenario.

BTC: $59,315 (+8.1% / 7-day)

ETH :$2,320 (+0.8% / 7-day)

SOL :$131.28 (+1.2% / 7-day)

Crypto

Given the uncertainty surrounding the election outcome, the clearest seeming trade revolves around the continued ETH underperformance (vs Bitcoin) in my opinion. 

Ethereum suffers more from regulatory uncertainty while Bitcoin remains a more direct inflation / monetary easing play. 

This means, I continue to see ETH upside as limited, making call sales attractive relative to BTC. 

The relative volatility of ETH, trading at a +15% vol premium across the term structure reinforces that idea. 

That being said, the institutional block-trade flow seems to disagree with me. We can see the biggest paper traded over the past week has been 30,500 DEC 2400-3000C call spreads. A $5.5m cash outlay. 

While the BTC flow has see smaller relative trades, but the biggest was a vol seller of March 110k Calls for $1.5m credit. 

However, looking at the ATM December EOY expiration relative volatility, we can see the spread stands at a high. 

Something like the August 5th volatility explosion actually closed that gap. 

This type of “macro” event impacted BTC more. To me, this means that the Relative Volatility play for the Nov 5th US election could provide more Bitcoin reaction versus ETH. 

This makes the Nov 8th expiration cycle the most interesting for a Relative Volatility play between Bitcoin and ETH, as I’d expect the Macro to impact BTC more than ETH.

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

Crypto markets were active this week with little to show, ending the week roughly flat. ETH ended the week at -0.93% and oSQTH ended the week at -0.37%.

Volatility

oSQTH IV is 102.27% vs. its ref vol. at 68.31%.

Crab Strategy

Crab saw losses this week ending -1.87%.

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

Opyn Discord: discord.gg/opyn

Derive Overview

 ⁃ Derive vaults executed 4315 ETH-20240920-2600-C covered calls at average prices ranging between $9.6 and $9.9 (Deribit best bid at $9.4 for reference). 

 ⁃ New LBTC vaults have just opened for pre-deposits.

 ⁃ For both ETH and BTC 7 Realized volatility and ATM IV remain inline as markets are relatively quiet. 

 ⁃ For both ETH and BTC, from the 25 delta skews, both 7 and 30 day time horizons imply bearish sentiment (the latter more so), though substantially less so than earlier in the month. 

 ⁃ ATM IV for BTC is sitting around 50% for 7 and 30 DTE, implying ~2.6% daily moves. 

 ⁃ Forward volatility for the November 8 expiry is 75% implying for the period of October 25 - Nov 8:

 ⁃ 68% chance of a move between -13.56% and +15.68%

 ⁃ 95% chance of a move between -25.28% and +33.83%

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.