Crypto Options Analytics, April 7, 2024: BTC Halving & Vol Expectations

USA Week Ahead:

1. Monday 1pm - Chicago Fed President Goolsbee radio interview

2. Wednesday 8:30am - CPI

3. Wednesday 2pm - FOMC Minutes

4. Wednesday - Fed Governors Speak

5. Thursday 8:30am - PPI

6. Thursday - Fed Governors Speak

7. Friday - 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.

Macro Recap

This month’s NFP report was once again stellar by most measures. The economy added +303k jobs in March (vs +200k expected, +270k previously in Feb). 

At the same time, the growth in hourly earnings dropped from an annualized 4.7% → 4.5% (vs.+5.9% average during peak inflation). 

Powell also spoke on Wednesday and addressed questions about whether rates even need to come down in 2024 (three cuts are projected by the Fed). 

Powell argues that rates are indeed restrictive here, despite the resilient economy. He argues the resilience is due to other factors such as easing supply chain constraints. 

The CME FedWatch Tool is predicting a 50%/50% chance of a first cut in June. 

This upcoming week we will have both CPI and PPI number releases on Wednesday and Thursday respectively. This is going to help bring more clarity into the Fed’s potential cutting path. 

FOMC minutes are also scheduled to be released on Wednesday at 2pm ET. 

Another very interesting development last week is the massive rally in Gold. Gold is starting to feel like it’s “squeezing” higher here and I’m watching for a capitulation higher trade to fade later. 

Chart: (ThinkOrSwim “GVZ” GOLD volatility index) 

I don’t think we’re quite there yet, I’d expect GVZ to at least get into the 20-handle for any interesting squeeze capitulation trade set-up. 

Fundamentally, with rates as high as they are and inflation dropping, real rates (Nominal yields - Inflation) are rather high today, meaning non-yielding assets like Gold should be less interesting. Hence, the squeeze theory.

Chart: (Gold vs Real Yield “Inverse” - ZeroHedge.com) 

BTC: $69,770 (-1.0% / 7-day)

ETH :$3,382 (-6.6% / 7-day)

SOL :$180.41 (-8.5% / 7-day)

We finally saw a little bit of a pullback last week, as positioning had become quite extended ahead of BTC halving. We can see that BTC basis is now back around 15% versus about 25% at the beginning of last week. This is a much more reasonable level to rebuild positions going into 4/20 halving.

Chart: BTC 90-day Annualized Basis

Going into the halving, I continue to believe the “base case” is a grind higher in spot (a drift higher) but that option implied volatility is over-pricing the event. 

Chart: BTC 7-day VRP

Not only is the VRP beginning to widen - judging by the 7-day VRP above - but overlaying various RV measurements on top of the BTC Term Structure, we can see that realized is likely to hang around 62%, while implied is trading about 75% into halving. 

Chart: BTC ATM Term Structure w/ RV measurements

Lastly, from a qualitative perspective, I continue to believe paying a volatility premium for a highly predictable outcome (the BTC halving) isn’t worth a volatility event premium. 

Not to mention that nearly all the big volatility events in Crypto (ETH PoS merge, ETH Shanghai upgrade, BTC Spot ETF decision) have disappointed IV buyers when RV failed to materialize by very large margins. 

Paradigm's Week In Review

BTC -5.17% / ETH -8.79% / NDX -1.20%

Paradigm Top Trades this Week 👇

Weekly BTC Cumulative Taker Flow 🌊

Weekly ETH Cumulative Taker Flow 🌊

BTC Cumulative OI 

ETH Cumulative OI

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BTC

ETH

The Squeethcosystem Report

Crypto markets found some selling this week. ETH ended the week -4.83% and oSQTH ended the week at -11.25%.

Volatility

oSQTH IV was active this week trading +120 before ending the week near 100.

Crab Strategy

Crab saw gains ending the week +1.57% 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.