AD Derivatives Newsletter: Bitcoin Surpass $100K Amid Economic Shifts

Discover the key drivers behind Bitcoin's record-breaking rally, Ethereum's volatility surge, and what macroeconomic shifts could mean for markets. Read more to dive deeper into the analysis.

USA Week Ahead (ET):

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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 Overview

Crypto rocked the investment world last week as Bitcoin broke past $100,000, but macro events were still worth highlighting. 

On Friday we had the non-farm payrolls number which showed a massive gain of +227k jobs for November (beating expectations of +214k) and recovering from the low +36k jobs in October. 

There was a bit of inflation pressure as well, since the hourly wages showed +4% annualized growth. 

Another interesting economic release last week was the Consumer Sentiment index, which saw consumers respond very positively, shifting the vision of the current conditions much higher. 

There was also an expectation for inflation too!

This upcoming week we have CPI and PPI releases Wednesday and Thursday respectively. 

December 18th is the FOMC rate decision, currently pricing another -25bps cut. 

Any inflationary surprises in the PPI or CPI could cause the Fed to adjust forward guidances towards rate cut pauses. 

Chart: CME FedWatch Tool

BTC: $99,828 (+2.7% / 7-day)

ETH :$3,979 (+7.8% / 7-day)

SOL :$235.14 (-0.2% / 7-day)

Crypto Options Overview

President-elect Donald Trump has selected Paul Atkins, a conservative lawyer and former SEC commissioner, to lead the Securities and Exchange Commission.

This helped push Bitcoin over the $100,000 price level last week. 

Atkins is known for skepticism toward heavy regulations and is expected to revisit rules implemented during the Biden administration.

Chart: BTC 1hr Spot Prices (Finviz.com)

The $100k level is a major technical level that traders have been eyeing for years (laser eyes since 2022). 

As prices broke above $100k IV popped into the 70-handle as short traders were massively liquidated. 

Chart: BTC Futures and Perp Net Liquidations

Then market longs were ALSO flushed out as spot prices crashed near $90k. This is definitely the type of action expected around large resistence/support levels… where everyone is battling it out. 

Chart: BTC ATM IV on Deribit

Again, this cause IV to pop right back-up to around 73% on Deribit. 

In my mind, the market has now shown it’s hand, in terms of volatility. The most EPIC gamma moves (during these liquidations) put vol. to 75% as a high for short-term expirations. 

Chart: Deribit BTC Term Structure

Chart: IBIT Term Structure

Given the massive Contango in the Bitcoin ATM IV Term Structure, with highs around the 70% level, this makes me shift my bias towards the short-vol positioning, with a couple important caveats. 

Why short bias? 

1. The market has showed it’s hand
2. Most market events are now behind us or well known
   1. IBIT options launch
   2. 100k level breach
   3. SEC appointment / Crypto and AI czar David Sacks 
   4. MSTR Convertible bond purchase impacts
3. The structural trend in BTC volatility has been lower over time (see chart below of 90-day IV since Dec 2019).

Chart: 90-day IV Deribit

Since September 2023 we see that Bitcoin 90-day Implied has been range bound, with the lower reading around 42% IV (which is a lot lower than 72% IV) 

The one big major caveat in the back of my mind, is the potential for government purchases of strategic reserves with respect to Bitcoin. That could make Bitcoin move insanely higher. 

Likewise, increased corporate buying could be similar. 

Caveat aside, owning BTC/IBIT selling longterm option against holdings, capturing massive short vega through CC structures… that’s interesting. 

Stuff like that. 

There’s obviously more degen structures possible too!

Like selling longterm vega and buying low delta medium term gamma (diagonal like) the kind of structures that require portfolio margin.

Chart: BTC vs ETH relative vol. ATM term structures

Chart: ETH/BTC ratio 21day RV (TradingView.com)

ETH pricing in a strong premium in terms of relative vol over BTC is interesting. 

We’re seeing expanding volatility in the ETH/BTC ratio as well, as 21-day RV is about 57% there too. 

This bodes well for ETH to finally catchup to BTC performance… hopefully testing and breaking all-time-highs in the near future. 

New highs for 2024 seem reasonable. 

A big weight on Ethereum has been regulation against DeFi protocols. Because Ethereum is a base-layer smart-contract chain, a lot of the value for ETH comes from projects being built directly on top of ETH.

The Atkins nomination is a strong catalyst for Ethereum’s strong relative performance last week.

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

• Derive announced its multi-million dollar partnership with Ethena.
• Derive surpassed $100M in total value locked (TVL)
• All-time high weekly notional volume ($369M), fees ($126K), and monthly active traders (5323).
• Largest trade by premiums ($1.66M) conducted on December 4.

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.