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Markets surged last week after Powell’s Jackson Hole speech signaled a cautious shift toward rate cuts, driving the VIX to its lowest level of the year. At the same time, crypto markets saw ETH outperform BTC, with volatility dynamics pointing toward altcoins. The weeks ahead could prove pivotal as macro policy and crypto momentum collide.
USA Week Ahead (ET):
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Tuesday 10:00am - Consumer Confidence
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Thursday 8:30am - GDP (1st Revision)
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Friday 8:30am - PCE
*Various Fed Speakers during the week*
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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 Derive and may change their holdings anytime.
MACRO Overview
Last week markets closed with a bullish upswing across risk-assets, especially those sensitive to interest rates.
Powell’s Jackson Hole speech Friday morning was a major bullish catalyst that sent tech, web3 and crypto higher.
Powell’s Speech signaled a willingness to begin a slow rate cutting cycle. Other governors in the Fed argue cutting rates is a bad idea and the labor force is hard to gauge right now since there are outside forces (such as immigration policy) that are changing the nature of labor statistics.
Powell is pushing back against this argument believing the risks to the Labor force are now shifting the balance between inflation and full-employment, towards a slow rate cutting cycle.
VIX came crashing down Friday as a result.
The VIX is now at 14.24, the lowest value YTD. Vol might be too low given there are still geopolitical risks around the Ukraine/Russian war, the possibility of a bad earnings print from NVDIA this Wednesday or a negative surprise for the next NFP.
Today, NVDA accounts for 8% of the S&P500. The SPX has a large concentration of tech stocks, which means diversification effects of the index might not be able to tamp down earnings volatility of a big name like NVDA. (just a tought)
(Click here for link)
Back to Powell and the rate cut.
Something really interesting to consider is that rates were 100bps higher this time last year than today… WHILE inflation/CPI was lower then (+2.5%) vs today (+2.7%).
This makes the argument against a rate cut cycle pretty sound imo. What happens if the Fed cuts rates 25bps or 50bps in 2025 and the economy/jobs remains strong?
What happens if rates are cut and inflation remains sticky?
Rates would NEED to be hiked in 2026 again… but if we have a new Fed Chairman, specifically appointed by Trump to be dovish, does the market really believe there will be a willingness to fight inflation?
That set-up would be a BOOM catalyst for Bitcoin and Gold, although bad for consumers.
This is something to keep in mind. The trend higher for BTC remains intact imo, without some sort of large “risk-off” catalyst… which can be hedged today via VIX.
(Click here for link)
Lastly, revisiting the CME FedWatch Tool, we can see the probabilities for 0% rate cuts in 2025 have fallen from 8% → 1% over the past month.
The probability for 3x rate cuts / 75bps are increased from 17.4% → 37.7% over the past month.
My base case scenario is a cut in Sept, a skip in October, and a coin-flip in Dec.
I doubt Powell does 3x rate cuts in a row, he has been too measured and cautious for knee-jerk responses like that.
BTC: $114,358 (-3.1% / 7-day)
ETH: $4,856 (+7.1% / 7-day)
SOL: $207.79 (+7.3% / 7-day)
Crypto Options Overview
This past week was another major winner for ETH. The eth/btc price ratio continues to rally… Long-term I expect this ratio to test the 0.07 range again.
ETH (the web3 tech play) has continued to perform well alongside risk assets and tech stocks. BTC (digital gold) underperformed this week, dropping -3% despite ETH rallying +7%.
If we look at long-term realized volatility between the two assets, we can see Bitcoin RV continues to drop lower, nearly back to 2023 lows.
ETH RV has been trending higher as the asset gains momentum.
Something that’s interesting is the volatility of the eth/btc ratio itself. If correlations break down the RV of eth/btc should increase, while perfect 1.00 correlation would decrease this volatility down.
Side-Note: the realized Volatility of eth/btc is actually derived using our new Model ATM value, which incorporates term structure reversion dynamics to reflect “IV” patterns as opposed to merely RV.
We can use this model to compare/extract “event IV” versus the Model ATM. Looking at the overlay of Model ATM vs Deribit’s BTC ATM volatility during the Nov. 2024 US election, you can see the insane magnitude of implied volatility event premium, versus Model ATM (7-dte)… Which quickly collapsed post-event… Interesting way to gauge market implied vol. premiums.
As BTC volatility continues to drift lower, I continue to think selling MSTR premium to finance ETHa premium is an interesting trade.
Strategy implied volatility continues to leave the market alongside a diminishing mNav premium.
Not to mention that all the Convertable Bond holders are long MSTR volatility, plus dilutive dynamics against the stock (for more BTC purchases) should the mNav rally again. All these effects tamper down volatility for MSTR, which holds an asset with diminishing volatility.
In terms of BTC, the EOY options continue to be expensive on the forward curve.
And when looking at the past IV versus the actualized RV, we see long-dated options having the large differential as well.
The options market continues to price a pick-up in volatility for BTC, especially on the back of $150k EOY price targets chirping on twitter.
But the GEX profile for BTC shows a lot of work needs to be done to break through into new ATHs again.
Dealers are long a lot of gamma starting at $116k+. I think there’s a strong argument that the marginal buyer for BTC is getting smaller.
Vol will likely be expressed in ETH, SOL and other alts for the time being. I expect BTC to grind higher in a stable fashion as opposed for FOMO break-higher (at least for now).
Paradigm Top Trades this Week
BTC Cumulative Taker Flow
ETH Cumulative Taker Flow
BTC Cumulative OI
ETH Cumulative OI
BTC
ETH
- Derive ETH traders are back to being call buyers, with the most popular instruments over the last week the Aug 29 4500 and 4900 calls respectively being the two most traded instruments.
- BTC, meanwhile, is a mixed bag, with the August 29 122K C and the Aug 22 116K P coming in as the top traded instruments, followed by longer dated options expiring in December and early September respectively.
- We’ve seen ETH skew surge from -6% to +7% and -2% to +1% respectively for the 7 and 30 day expiries. This comes in light of Jerome Powell’s doveish comments at the Jackson Hole summit at the end of last week. See Figure below.
- Broadly, on Derive we see a big build up of open interest around the 4900 - 5200 call range while for puts we see a clustering around 3900 - 4200.
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.
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