Tuesday 1:15pm - Powell Speaks
Wednesday 2pm - Beige Book
All Week - Fed Govs speak throughout the day
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.
Last week the market had a massive wakeup call to the idea of stickier inflation.
We saw the Core CPI number grow at 3.8% year-over-year versus a 3.7% expectation.
This greater-than-expected headline has drastically repriced the probability of a rate cut in the June FOMC from 50% → 25%.
Chart: CME FedWatch Tool 4/14/2024
Chart: CME FedWatch Tool 4/7/2024
The impact on bonds from the CPI headline numbers was then compounded by a very poor 10-year auction. This auction was one of the weakest in history in terms of bid-to-cover and lackluster foreign demand. This is possibly the worst-case scenario as the US grows its spending and funding needs astronomically.
Chart: Quarterly Treasury issuance, gross via Wsj.com
The combined effects of weaker demand and greater supply for treasuries is a 2-sided effect that doesn’t bode well for us, especially if the US becomes even more financially and militarily entangled around the globe.
Chart: Treasury Yield Curve (week-over-week)
This brings us to the last event seen last week, geopolitical risk in Iran.
Gold markets reacted heavily by capitulating to $2,445 with gold vol exploding to nearly 24% intraday and settling in the 20% handle.
BTC: $64,070 (-8.7% / 7-day)
ETH: $3,067 (-9.4% / 7-day)
SOL: $138.41 (-23.9% / 7-day)
This week BTC and the rest of crypto had a large risk-off moment as prices came screaming lower.
The weekend risk proved to be real as liquidations saw extremes.
As we’ve mentioned recently, the buildup in leveraged longs and the associated impact on basis showed a vulnerable market despite the strong fundamentals (ETF flows, halving).
The market was largely long and everyone seemed positioned on the same side.
Chart: BTC 90-day basis
This type of market reset is very constructive. We can see that basis finally puked lower and futures OI has come down as well.
This allows for markets to re-establish fresh long exposure when ready.
The fundamental picture has only become stronger, not weaker.
Plus the other existing fundamental points:
Chart: ATM Term Structure vs 7-days ago (time lapse/shadow)
In my opinion, there’s an interesting opportunity to structure BTC option exposure here. We can see that the week-over-week term structure has twisted.
This is further confirmed by the term-structure richness chart shown below, displaying 5 years of past data.
Chart: Term Structure Richness (5yr)
My baseline thesis is that short-term volatility is going to disappoint as BTC halving isn’t a true “vol event” painted with uncertainty.
While long-term BTC longs will come back to the market and push funding/basis back up, which means that the premium in long-term futures will return to the market, making calls more valuable.
Chart: Deribit 6m $ value of Basis
Above we can see that the 6-month $ value of basis has dropped from about $8k to it’s peak of $3.5k today.
To me, the opportunity here is something like a vertical roll.
For example:
-1 Call-Spread: 4/26 72-80k (-14∆/+$700 credit)
+1 Call-Spread: 12/27 80-100k (+14∆/-$4.5k Debit)
As the halving comes and goes, I’d expect the short call spread to expire worthless while fundamentals that support a longer-term rally will also be associated with new leverage longs benefiting the call spread with extra juice from the basis.
BTC -3.08% / ETH -6.68% / NDX -0.52%
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Crypto markets found some selling this week. ETH ended the week -9.28% and oSQTH ended the week at -18.50%.
oSQTH IV based early and climbed throughout the week ending +120.
Crab saw declines ending the week -3.20% 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.