Market Insights
Article by Elisha
May ended with a mini short squeeze with BTC rallying to 32,400 and ETH to 2,106.
This was shortlived as June opened weak. BTC dropped back below 30,000 and ETH below 1,800. The market has kept to this range through the week.
BTC dominance continues to grow as the ETHBTC cross breaks below 0.06 with ETH (and the rest of the Alts) clearly underperforming.
In the vol space, there was a 10% spike in the front end on the back of the spot rally. This was unusual as vols typically soften when spot rallies and spike when spot dips.
We reckon the market was overly short topside vol and was scrambling to cover. This makes sense as call selling was a popular trade in light of market stress, especially over the LUNA crash,
If this an indication of overall market positioning (i.e. market is directionally short), spot prices might have formed a base here and we could see more spot upside in the short-term.
We highlighted three positions in the vol book last week. This is how they have fared so far:
1. Fade the risk reversal (buy call / sell put) has worked will with the downside skew reducing across the board (BTC from -15% to above -10% and ETH from -20% to above -15%). We have taken profit at these levels.
2. Long wings (far-strike options) has not done much with tail pricing holding steady. We are keeping this position as a play on outsized moves in either direction if key levels break.
3. Steepener (short front-end, long back-end) has also worked out well with front end vols under constant pressure. The June 22 vs March 23 spread was flat last week but has since inched up to +4% in BTC (June 2022 at 60% vs March 2023 at 64%) and +6% in ETH (June 2022 at 72% vs March 2023 at 78%).
We’ve taken partial profit here but intend to hold a core steepener position. We feel that the market might be a little too sanguine in light of risk events in the later part of the year for both macro and crypto specifically.
The book remains nimble overall. We are leaning long delta from here as we expect spot prices to trade higher in the near-term. We are also tactically long vol in the 17 June bucket into the upcoming FOMC meeting on 15 June.
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