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We kick off this week with continued bullish momentum in the crypto market, seemingly actualizing the post-halving prophecy. Last week, BTC moved from $63,000 to $66,000 by Wednesday (ETH from $2,935 to $3,033), and ultimately up to $67,000 by the end of the week. Things were quiet over the weekend until Monday morning when positive news regarding the upcoming ETH ETF decisions was released. This propelled BTC up to $70,000 and ETH up to $3,700, marking over a 20% increase. A slight pullback is reasonable to expect, but unless we see a major bearish move below $68K, all signs point to further upward movement from here.
Annualized basis and funding rates also bounced back in response to the bullish price action. BTC and ETH annualized basis rates picked up about 4%-5%, and now exhibit a downward sloping term structure starting at around 15% annualized in the front end and tapering off to about 12.5% for furthest expiries. Options volatility skew also lifted significantly, with 25-delta calls now being priced at 4-5 vol higher relative to 25-delta puts. Implied volatilities increased across all tenures as well, with BTC vols lifting about 6 points, and ETH vols lifting a staggering 12 points for shorter expiries and 5-7 points for further expiries.
Many traders will likely use this opportunity to buy vertical spreads and/or sell upside. It is quite an interesting moment in the market however, and we will no doubt continue to see a healthy mix of buyers and sellers of vol coming into the market.
Combo spread volumes bounced back this week to healthy levels with over 5000 combo spreads traded in BTC’s top 3 and over 80,000 in ETH’s. Current market conditions create an interesting situation for traders. Arguments can be made both for and against selling vol at these levels, as implied volatilities are heightened, but can also easily go much higher if spot does (positive spot - vol correlation).
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of May 21st, 2024 12:00:00 UTC
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