Market Insights
Article by Elisha
A bullish self-reinforcing cycle seems to have developed in ETH. The dynamic is as follows:
1. ETH spot rallied, pricing in the impact of EIP-1559. (85% price increase from the 1718 low in July)
2. The sharp move higher has reignited interest from speculators who are no longer just trading with leverage on ETH, BTC and altcoins. NFTs are the new speculative darling.
3. The trading volume in NFTs has been incredible, surpassing any other ETH transaction venue now including Defi and Stablecoin flow (Chart 1).
Chart 1
4. This has led to a greater burn rate on ETH, spurring further price appreciation which in turn encourages more interest and speculation.
While this ETH move and overall crypto move higher has been positive for us, we remain wary of potential downside risks on the horizon. Recall our market update from 8 July:
“…we expect a dampened trading environment from here to Aug (short vol), followed by a rally possibly on the back of the EIP-1559 mainnet implementation (long spot, long calls), and then the larger Q4 Wave 5 selloff on the Fed’s taper (sell spot, buy downside risk reversals).”
And also our historical price analog (Chart 2) which anticipates downside pressure following a sharp rally.
Chart 2
With the recent hawkish Fed speak and strong US data (particularly US CPI tomorrow), could the indication of tapering from the Fed be the trigger for a sell-off?
We are unsure.
We are also increasingly uncertain about how crypto prices would be impacted by macro forces given the idiosyncratic divergences between BTC and macro assets such as Gold (Chart 3 – historically 62% positive correlation).
Chart 3
So we remain long delta but we have been buying downside gamma for protection.
In options, the frenzied buying of calls in both BTC and ETH across the curve has resulted in a short squeeze (in both spot and vols). We think this flow comes from funds and large speculators making large topside bets, buying BTC strikes up to 80-100k and ETH strikes up to 8-10k from as early as September 2021 out to June 2022.
This has pushed implieds in BTC from around 80% end-July to about 100% now (Chart 4) and in ETH from around 100% to 120% now (Chart 5). A substantial move.
Chart 4
Chart 5
The market was clearly caught offside on this vol move as liquidity deteriorated with market makers clearly shading prices to the buy side. The QCP desk was on the other side on a good part of the vol buying so we’ve taken some pain on our short vol position as well.
Interestingly enough, realised vol has not picked up substantially on this move (Chart 6) and skew remains relatively muted (Chart 7).
Chart 6
Chart 7
We maintain our short vol view. In fact, vega (longer dated puts and calls) looks like a good sell at these elevated levels.
a) For the front-end traders, they were frantically covering their short positions as the continued rally squeezed into their shorts b) Mid-tenor traders were relatively
Reject modernity, embrace tradition. These 4 four words would have served you well in navigating (and profiting!) from crypto markets in the past week. Seasoned
BTC briefly touched 98k over the Thanksgiving weekend, driven by Saylor’s BTC investment strategy presentation to Microsoft. Microsoft’s shareholders are scheduled to vote on a
BTC reclaimed the critical 95,000 level last night after PCE price index came in as expected. ETH was the main outperformer yesterday as it rallied
This information contained in this website is intended as a general introduction to QCP Capital and its activities as a Digital Payment Token (DPT) service provider and is for informational purposes only.
QCP Capital is not acting and does not purport to act in any way as an advisor or in a fiduciary capacity vis-a-vis any counterparty. Therefore, it is strongly suggested that any prospective counterparty obtain independent advice in relation to any trading investment, financial, legal, tax, accounting or regulatory issues discussed herein. This website is only directed at informed and qualified investors. Your entry to this website attests that you are fully aware that trading of DPTs is not suitable for the general public and that you are an informed and qualified investor, and are also fully cognisant of all technological and financial risk(s) associated with trading Digital Payment Tokens.
In the event you intend to onboard with QCP Capital to trade in DPTs, by onboarding with us you acknowledge that you are aware of any rules and/or regulations applicable to the provision of DPT and/or financial services, the high degree of risk involved and that in no event will QCP Capital or any if its directors or employees be liable for any injury loss, claim or damage (whether direct, indirect, consequential or incidental) arising either directly or indirectly out of, or in any way connected with, the site, or its use.
If you are located, incorporated, or otherwise established in, or a citizen or resident of certain jurisdictions, QCP Capital may be unable to, or otherwise reserve its right to refuse to engage in or establish a trading relationship with you. Please contact us if you believe you have received this notice in error. QCP Capital is not registered or licensed to operate in the states of Louisiana and New York and will not be able to establish a trading relationship with you if you are resident, incorporated or have your principal place of business in New York or Louisiana.
You also acknowledge that you understand that trading in payment token derivatives (“PTD”) are also not any less risky than trading in DPTs. PTD services are not regulated by the MAS and QCP Capital is as such not licensed under the MAS to provide PTD services. You should only trade in PTDs if you are an Accredited Investor and/or have sufficient experience and knowledge in trading PTDs.
Risk Warning on Digital Payment Digital Services
The Monetary Authority of Singapore (MAS) requires us to provide this risk warning to you as a customer of a digital payment token (DPT) service provider.
Before you pay your DPT service provider any money or DPT, you should be aware of the following.
Your DPT service provider is an exempt payment services provider pending licensing under the Payment Services Act (2019) to provide DPT services. Please note that this does not mean you will be able to recover all the money or DPTs you paid to your DPT service provider if your DPT service provider’s business fails.
You should not transact in the DPT if you are not familiar with this DPT. This includes how the DPT is created, and how the DPT you intend to transact is transferred or held by your DPT service provider.
You should be aware that the value of DPTs may fluctuate greatly. You should buy DPTs only if you are prepared to accept the risk of losing all of the money you put into such tokens.
You should be aware that your DPT service provider, as part of its licence to provide DPT services, may offer services related to DPTs which are promoted as having a stable value, commonly known as “stablecoin”.
