A weak labor print, sticky inflation, rising GDP, global tariffs, and a crypto market caught in the middle. Last week rewrote the macro script and set the stage for what could be a volatile finish to summer. Dive into the full story, including trade setups and what to watch next in this week's Amberdata Derivatives Newsletter:
Tuesday 8:30am - US Trade Deficit
Tuesday 10am - ISM Services
Thursday 8:30am - Initial Jobless Claims
Thursday Aug 7th - Tariffs to go into effect
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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.
A lot happened this past week!
We had the FOMC rate decision, ADP and NFP employment reports, the PCE inflation index, GDP, a combination of crypto earnings for MSTR and COIN and global tariffs went into effect as well.
The week started off with the FOMC rate decision. This decision was uneventful with futures markets only predicting a 2.6% chance of a Fed rate cut on Wednesday. The Fed kept rates as-is.
Both Waller and Bowman dissented with the rate decision, further clarifying that they both believed the labor market was weaker than believed.
“While the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed,” Fed Gov. Christopher Waller said.
Wednesday also had a positive economic release with the Q2 GDP printing +3% annualized growth. This is a nice reversal from Q1 when GDP shrank by -0.50% for the quarter. Although some economist point to GDP being only boosted by a good net exports value (due to imports being front-loaded in Q1). Exports - Imports = Net Exports as part of GDP.
The Personal Consumption Expenditures (PCE) index showed a rise in inflation. The index printed at +2.6% annualized inflation for June compared to expectations of a (+2.5%) reading. This is a pretty significant rise over the average of +2.3% seen in the previous 3-months of readings.
So far, it’s very understandable why the Fed would not be willing to cut in July given that inflation continued to be higher than the +2.0% target while the economy displayed decent GDP and labor markets remained solid… until Friday’s report.
The big market-moving news came on Friday with the underwhelming +73,000 jobs print (versus +100,000 expected), but the even worse downward revisions of the previous two strong jobs reports by -258,000 jobs. This easily puts into question the narrative of a resilient labor market.
This NFP print was a game changer. The USD instantly traded down against CAD, Yen and Gold. While US bonds rallied across the curve as the relatively high US rates are now in focus to be cut.
This also gives room to the Fed to cut without looking like it's losing it's independence to pressure from the Administration. This silver lining allows the Fed to do what Trump wants without "bending the knee"
Before today's jobs number release a September rate cut was given 65% probability, today that probability now jumped to 80%
Lastly, the real kicker for the foreseeable future is the impact on risk-assets from the global tariffs going into affect.
We all remember the April meltdown from tariffs after the Liberation Day announcements. Today the market less spooked by tariffs but the combination of weakening labor with still above target inflation could easily begin to start hitting risk-assets.
In my mind, rate cuts are a high probability (Good for Gold and Bitcoin) while a weakening economy hits risk assets (bad for risk—on trades and alts/web3) plays.
Next week things are much quieter with only a handful of medium-impact macro releases. US Trade Deficit, ISM services and some more insights into the labor market through the weekly “Initial Jobs Report”.
BTC: $113,943 (-3.5% / 7-day)
ETH: $3,490 (-8.5% / 7-day)
SOL: $161.12 (-13.6% / 7-day)
Bitcoin sold off Friday after the jobs report, being dragged lower alongside risk-assets.
VIX rallied from a Thursday low to Friday close of (VIX) 15 → 20.50.
Bitcoin displayed its mixed asset properties of Digital Gold and Risk-Asset.
During the weakness Bitcoin outperformed ETH and SOL, but still dropped despite Gold rallying.
That said, zoom out a little and notice that the BTC trend higher looks to be intact. There is no reason to panic here and think it’s time to sell BTC.
The option market seems a bit ambitious to price in downside RR-Skew, as short-term options hit monthly lows for the ∆25 RR.
Chart: pro.amberdata.io
Implied volatility continues to remain a sell in this environment, as realized just can’t seem to meet expectations.
There's an especially rich December EOY expiration on the curve. That is the most expensive point on the curve with 45% ATM volatility and a positive 0.50% ∆25 RR.
Compare this to Sept expiration with 38% ATM volatility and -1.00% ∆25 RR.
This makes selling the ∆25 Call ($150k Strike) delta hedged against +0.25 BTC interesting in this environment (I also like regular covered calls). Since volatility has persistently underperformed and the term structure is displaying a steady and steep Contango over the past few months.
Only the November election (bull), inauguration (bull), tariffs (bear) and Liberation day (bear) were able to get us above a flat 1.00 term structure.
MSTR
Strategy had a good headline EPS beat but it was mostly due to a mark-to-market gain on BTC holdings. An accounting rule change allowed for this line item gain.
MSTR also announced its new strategy of funding BTC purchases through preferred stock issuance.
I suppose the convertible bond issuance isn’t as attractive since MSTR volatility has dropped a lot from February and hasn’t been able to rebound.
They also announced a limit on common stock issuance to environments that price shares 2.5x NAV holdings
We can see this ratio has trended down a lot since the December highs late last year.
There’s probably no reason to assume this ratio can’t trend down to 1.00 either.
Given the lower trending ratio, persistent IV premium in BTC and sticky lower volatility for MSTR overall, there’s a decent trade for selling upside MSTR via short MSTU (2x MSTR etf) calls.
MSTU short-calls also capture the 2x tracking “drag” which benefits a short-call strategy (or a ratio trade).
Something like this seems interesting to me too.
COIN
Coin also had earnings last week (the market didn’t like them) and the stock was sent much lower, dropping from about $375 → $315.
A big theme in the coinbase earnings report was the drop in retail volume, surprising given the strong performance in BTC.
Maybe retail isn’t as active OR retail is trading elsewhere… this would mean COIN needs Altcoin season to happen for retail to trade on COIN as opposed to listed ETFs (for major pairs).
Unlike BTC and MSTR, however, Coinbase continues to pay volatility buyers; we see persistent events sending realized volatility into the 100-150% range.
This makes Coinbase options versus BTC or MSTR an interesting way to look at the market.
The term structure for coinbase is clearly in backwardation post earnings but the overall level of volatility is still pretty low.
Considering Bitcoin Dec EOY volatility is 45% COIN being priced at 59% makes owning COIN volatility attractive on a relative basis.
Especially since the COIN business is correlated to BTC spot.
The COIN ∆20 RR-skew was sent sharply lower post earnings, we see short-term options trading from +5 skew down to -10% post earnings.
Implied volatility, however, has managed to climb higher through the earnings release, making me think there’s something to owning the COIN options paper.
An idea is to sell the BTC Dec call to buy a COIN call-spread (tricky to manage and rebalance), but it’s something to look at, in my opinion.
BTC
ETH
Chart: BTC OI
Chart: ETH OI
ETH OI
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.