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US Q2 GDP came in stronger than expected at +3.8%, led by robust consumer spending, while Core PCE inflation held steady at +2.9%. Markets face potential volatility ahead with the upcoming jobs report and a looming government shutdown. In crypto, BTC lagged while Gold gained, making downside hedges increasingly attractive. Review our findings in this week's Amberdata Derivatives Newsletter:
USA Week Ahead (ET):
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Wednesday 8:15 am - ADP payrolls
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Friday 8:30 am - NFP/Employment Report
*Various Fed Governors Speak throughout 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 Weekly Overview
On the macro front last week, the 3rd revision for Q2 GDP came in very strong. This third revision number wasn’t even something I planned to pay attention to, but the upside surprise was some unexpected good news.
WSJ.com GDP Q/Q
The Q2 GDP was initially estimated to be +3%, then was revised to +3.3% (2nd revision), then finally revised to +3.8% upon last week’s (3rd revision).
This print is in annualized terms and adjusted for both inflation and seasonal effects.
Consumer spending led this GDP print higher.
WikiMedia - GDP per Capita (click here for link)
Just to give broader perspective, the chart above shows the GDP per capita over the past 30yrs for the US vs it’s peers.
We also had the PCE report released last week. This was the main number I was paying attention too.
As a reminder, Core PCE is what the Fed targets when they speak of a +2.00% inflation mandate.
Powell, continues to reiterate that he’s currently facing a two front battle, stubbornly high inflation and weaker than expected job growth.
WSJ.com Core PCE
Friday’s release came in right on the dot. +2.7% annualized PCE inflation (as expected) and +2.9% Core PCE (as expected).
These types of readings are fine by me and help bring stability to the markets.
Looking forward into the upcoming week, we have a lot of reasons for volatility.
On Friday, we have the monthly employment report, which is forecast to show +45,000 payroll jobs and a steady +4.3% unemployment rate.
We also have a looming government shutdown. This will be interesting. According to sources, there have been 22 shutdowns since 1976, and most are resolved within 7-days.
There’s also a lot of political uncertainty around Russia and Ukraine. Unfortunately, Putin doesn’t seem keen to back off.
VIX upside looks interesting to me. Especially with VIX at 15.29 and VVIX (vix of vix options) at 93.40
Chart: VIX (thinkOrSwim)
Chart: VVIX (thinkOrSwim)
BTC: $110,255 (-4.6% / 7-day)
ETH: $4,037 (-9.6% / 7-day)
SOL: $205.09 (-13.5% / 7-day)
Crypto Options Overview
Last week, BTC broke ranks with Gold as BTC underperformed week-over-week.
BTC = -4.60%
Gold = +2.23%
We can see the short-term option buyers were finally rewarded with some realized volatility.
As mentioned in the Macro section (above), there are good reasons to expect some risk in the near-term.
Long-term, I still love the BTC trend higher and the long-term appreciation trend seems intact to me… The “digital Gold” narrative remains a strong one imo, and looking to Gold as a prelude to BTC’s appreciation prospects remains valid.
That said, BTC still has an investor base of “risk-on” owners, and any drop in risk assets will likely bring BTC realized volatility higher.
When looking at the Term Structure, we continue to see a steep contango. This provides great opportunity to hedge BTC longs by buying short-term puts. Own the gamma.
To contextualize today’s term structure, we can look at the past 6 years of the term structure shape using our “Richness” chart above.
Any meltdown is spot prices can easily get us into a flat (even backwardation) shape. Meaning this front-volatility is providing a good entry for downside hedges.
Let’s not forget that last week saw massive perp liquidations… Traders were a bit complacent with risk and got liq’d. Normally, one could argue the purging of longs is a bottom, but given the macro landscape, the timing for a BTC bottom at $110k seems unrealistic.
Basis remains robust and relatively high at a 6.5% annualized rate.
And open interest in BTC ∆1 products (perps and futs) remains high as well, even after accounting for the liquidations drop.
The spot/vol relationship was displayed as negative last week as RV finally exceeded IV.
Dealers are short a lot of gamma around the $107k-$111k zone as the street owns some downside protection.
Maybe I’m “late to the party” for put buying, but given the size of the crypto vol market (vs spot) and the size of crypto vs equities… The BTC put buying party remains small, and therefore I don’t think short-term downside plays are anywhere near a “crowded trade”.
We can see the RR-Skew is priced negatively for BTC ∆25 options of 7-dte and 30-dte options, but not overly negative.
The RR-Skew is merely “leaning” negative. To me, this remains the play going into the next week or two.
TL:DR - A lot of reasons to be defensive here and crypto options plays aren’t crowded for defensive trade, IMO.
Paradigm Top Trades this Week
BTC Cumulative Taker Flow
ETH Cumulative Taker Flow
BTC Cumulative OI
ETH Cumulative OI
BTC
ETH
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Eth Strategy, an onchain version of MicroStrategy for ETH, conducted its first perpetual note trade on Derive and sold 213 x $4700 weekly ETH calls at prices better than top of book on Deribit.
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Further information about this partnership can be found here
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A further 340K of $DRV was bought back this week, the 30th such buyback.
Derive also announced its new API broker program for extensive fee rebates.
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.
