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Volatility continues in crypto markets as last Monday BTC flirted with all-time-high $72,400, only to conclude the week by dropping a staggering 17% and ultimately bouncing off $60,000. It stabilized on Sunday afternoon at $64,000, but early morning price action today suggests we may not be out of deep waters just yet. Bearish momentum is still evident and a rejection of previous support level $66,750 on higher time frame candles is not a good sign.
Along with last week’s downturn came a compression of the basis. Annualized rates are now trading in the 10%-13% range, a significant difference from previously seen rates of up to 20%. This suggests that futures / perp shorts are opening up, driving the basis lower as many market participants are likely electing to hedge their spot holdings rather than liquidating. It will be interesting to see how the futures / spot dynamic evolves as the halving approaches. This will be a telltale sign of whether the market is risk-on or cautious coming into the halving.
The derivatives market structure also changed quite dramatically amidst last week’s price action. Front-end BTC vols dropped by over 10 points and short-dated vol is now priced at about 68%. The rest of the volatility curve also saw big shifts downwards, but the drops in ATM vols were increasingly smaller as one looks to further expiries, creating a very steep term structure. Volatility skew also took a hit with short-dated skews now going negative and favoring puts, and long-dated skew dropping but still positive. The difference in long-dated skew is palpable however, as previously in the Sep/Dec expiries one could have sold 95K calls to fund a purchase of close to ATM puts, whereas now the equivalent put strike is over 15% away.
This week, derivative volumes have slightly decreased for BTC and ETH. This was likely due to caution after last week’s price movement, as uncertainty in the market was palpable.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of April 15th, 2024 12:00:00 UTC
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