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After renewed U.S. & China tariff concerns, markets pulled back sharply last week, triggering a broad risk-off move. Stocks and BTC dropped, while Gold rallied, widening the Gold-to-BTC market cap ratio to 11.75x. Despite a brief weekend rebound, liquidity stress, heavy liquidations, and volatility spikes suggest market instability isn’t over yet. Learn more in this week's Amberdata Derivatives Newsletter:
USA Week Ahead (ET):
-
Thursday 8:30 am - PPI (subject to gov shutdown delay)
*Various Fed Governors Speak throughout the week*
Visit Amberdata.io
Disclaimer: Nothing here is trading advice or solicitation. This is for educational purposes only.
Authors have holdings in BTC, ETH, and Derive and may change their holdings anytime.
MACRO Weekly Overview
Last week closed on a major risk-off tariff tweet with respect to China from Trump.
This sent stocks lower, BTC lower and VIX higher… but Gold remained strong and actually closed up on Friday.
Chart: ThinkOrSwim GOLD futures 1-minute
Chart: ThinkOrSwim BTC futures 1-minute
ETFs for Bitcoin and Gold respectively performed as follows w/w:
IBIT -5.17%
GLD +3.21%
Chart: TradingView.com Gold MCap / BTC MCap
The chart above from Trading view shows the Gold market cap to BTC market cap ratio.
Gold/BTC = 11.75x
We can see Gold’s market cap is 11.75x bigger than BTC but in Aug it was only 9x, which would imply a BTC price of about $150k-$160k should we end-up back to a 9.00 ratio.
Long-term my base case scenario is indeed for BTC to continue to perform as digital Gold (and I believe Gold continues higher for the next decade as USD Reserve status becomes undermined).
That said, in the short-term and medium-term BTC continues to trade as a “risk-on” asset (at least in part).
Last week we noted that VIX provided good entry for “risk-off” event hedges.
Chart: ThinkOrSwim VIX daily
VIX rallied a lot last week, along with VVIX (vix of vix options). Meaning call buyers on VIX we’re able to hedge the crypto meltdown witnessed on Friday. More on that later.
Chart: ThinkOrSwim VVIX daily
Over the weekend, we’ve seen a relief rally for risk-assets, but I think this isn’t truly over.
There’s just too much going on to believe that “everything is fine”. Let’s not forget the government is still shut-down.
Theoretically we have a PPI inflation release this Thursday, but we’ll see if the government shut-down delays the release.
BTC: $115,421 (-6.1% / 7-day)
ETH: $4,150 (-8.1% / 7-day)
SOL: $196.09 (-14.1% / 7-day)
Crypto Options Overview
Liquidations were crazy last Friday. There’s a lot to dig into here.
Isolating BTC liqs for a moment (the most liquid perp asset). We can see there was $2B in liqs for BTC alone.
That was against $77B of OI (now at $67B).
Chart: BTC liquidations
Volume was also $200B for BTC delta-one products on Friday, one of the largest volume days on record.
Chart: BTC futures/perps volume
1% of the volume for BTC delta-one products was straight liquidation flows.
Here’s what’s very interesting however, perp volumes are siloed and concentrated to their specific venues. Which means when a wall of liquidation flows hit the order-book, depth isn’t evenly distributed and prices can drastically vary between venues and products.
Let’s dig into this.
Chart: Deribit.com BTC-Perpetual Price
Here’s the Deribit venue for BTC-Perpetual product (a legit venue that handled the chaos well).
Due to liquidation flow, the BTC price hit a low of $102,000 during the Oct.10 21:00 UTC liqs event.
Chart: Coinbase.com BTC-USD price
Coinbase spot markets however, only traded a low of $108,000. This is the “cash market” where trades are typically fully funded and unlevered.
Let’s break down the underlying “order-book” depth.
I picked a random snapshot minute to compare before liquidations occurred. Here is Oct. 10th at 00:54:00 depth when things are working normally.
Return: Deribit BTC-Perp Bid Depth Oct. 10th, 00:54:00UTC (Amberdata API)
Return: Coinbase Pro BTC-USD Depth Oct. 10th, 00:54:00UTC (Amberdata API)
Notice that Deribit actually has more depth 400bps away from the best bid:
Deribit = $71m (depth backed by initial margin)
Coinbase = $45m (fully backed by cash)
The difference is that the Coinbase “cash market” wasn’t subject to as selling wave of liquidations that forced the market down in the same way as leveraged perps on centralized exchanges.
(I’ll explain why this is important for options in a second)
Funding rates (determined by the differential between perp prices and spot market prices) go crazy in these times… and when markets are stable funding rates help keep spot and perp prices in-line.
Unfortunately for leveraged positions, funding rates aren’t going to prevent deviations in the short-term when forced selling occurs all at once by many traders.
Chart: BTC perp funding
Notice the chart above, perp funding whipped around like crazy during the buy2close, then sell2close, liquidations. +200% funding to -150% funding in annualized terms.
How is this important for options?
Chart: FalconX research report (Amberdata API data)
(click here for report)
Today the market for Bitcoin options is essentially equally distributed between Deribit and BlackRock’s IBIT etf.
Deribit options are future options, while IBIT etf options are “cash market” proxy.
Today both venues trade at a similar volatility… but should they?
Chart: Futures RV - Spot RV (Amberdata API) 1/1/2020 to 9/1/2025
Look at the relation between the realized volatility of futures minus the realized volatility of “cash market” spot.
Futures volatility is consistently at a premium over spot RV. This isn’t a noisy chart where sometimes it’s less sometimes it’s more.
No, this is a consistent volatility premium…
This exists because Basis/Funding are “positively” correlated to spot prices… and during crashes (like Covide 19, Terra Luna, SVB) the extra juice from futures RV can easily hit +20 volatility points (even more depending on the measurement).
Tail-Risk put options are ESPECIALLY sensitive to this trade. If one can finance a ∆5 Deribit put purchase, through the sale of a ∆5 IBIT put, that’s a good trade… there’s free gamma there. $$$.
Okay, back to liquidations analysis, the more esoteric the asset and more degen the venue, the more prices break down below “cash markets”.
(keep that in mind when trading Altcoin options… Even if you’re trading OTC Altcoin options… putting “off-market” bids to gamma scalp tail-risk scenarios seems smart)
Here is the ATOM perp prices on HyperLiquid versus Coinbase.
Chart: hyperliquid Atom perp price
Chart: coinbase.com Atom-Usd price
HyperLiquid LOW = $1.50
Coinbase LOW = $2.85
HyperLiquid traded -48% below the cash market. That is insane. And ATOM perps on HyperLiquid aren’t even the most extreme example.
Looking at the top-of-book 25bs away from BBO, we can see HyperLiquid was $23,456 USD deep while Coinbase was $75,758 USD (coinbase depth converted to USD).
Return: HyperLiquid Atom perp depth (Amberdata API)
Return: Coinbase Atom-Usd depth (Amberdata API)
Again, cash markets aren’t subject to liquidation flows and the bids are fully financed, while perp bids are “initial margin” financed (meaning they quickly disappear when markets move around due to changes in account balances falling short of initial margin).
Anyways, looking forward, I personally think owning BTC long-term is the right move, and if we can get some “risk-off” event discount, I’m going to be happy.
For now, I don’t want to be fully invested here and miss the opportunity for a real dip “scoop”.
Should we get a sharp dip, I’d be looking to sell some medium-term ∆40 Puts (cash secured) to finance OTM long-term call spreads.
I like that structure a lot on sharp moves lower.
Selling expensive short-term volatility, with “assignment” as the worst case scenario, to own call spreads that allow for upward trends to resume…
Call spreads because vol. is high during crashes, and I want to sell away some of the long-term option Vega.
Last note, the term structure richness chart went nuts… You can see intraday we hit 1.20 (yellow line).
Chart: BTC Term Structure Richness (intraday) pro.amberdata.io
To contextualize this, look at the yellow line across 6yrs of data… the Term Structure Backwardation hit Covid, FTX, SVB, event “peaks”.
(although it was very brief and doesn’t show up on the “daily” chart).
Chart: BTC Term Structure Richness (daily) pro.amberdata.io
I like this volatility measure for marking local bottoms in the market.
Paradigm Top Trades this Week
BTC Cumulative Taker Flow
ETH Cumulative Taker Flow
BTC Cumulative OI
ETH Cumulative OI
BTC
ETH
Derive welcomes @FalconXGlobal as a market maker to help tighten spreads and deepen liquidity across our options markets. We’re building the best onchain options markets anywhere; now with institutional-grade participation starting to take shape.
Altcoin options are coming to Derive. After the recent market events, we’re listing altcoin options to give traders a smarter way to manage risk and hedge exposure. Let us know which alts you’d like to see first - get in touch.
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.
