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Over the past week in spot markets, BTC has persistently attempted to break the significant resistance level of $43,500 on higher time frames. Interestingly, there is also a noteworthy bullish bounce in the ETH/BTC pair, indicating a substantial divergence in the behavior of BTC and ETH price actions. While BTC remained range-bound between $42,000 and $43,600, ETH surpassed local highs, reaching $2,340, and demonstrated a considerably stronger bullish trend. Equity markets also continue to exhibit strength, with SPY's bullish trend persisting even after surpassing all-time highs of $465.
Futures funding rates for BTC remain consistent at 7%-10% across all expiries, while ETH sees rates ranging from 6%-9%. Disregarding extremely near-term expiries, the term structure of annualized basis appears relatively flat. However, the same cannot be said for at-the-money implied volatilities. Recent market movements seem to have been embraced by vol sellers, with a significant portion of market participants selling gamma at these levels. This is evident in the recent movement of implied vols, especially in the last week, where at-the-money vols for both BTC and ETH experienced a significant drop.
Front-end vols (representing the closest expiry) were hit the hardest, dropping by approximately 6 - 8 points, while further-dated expiries fell around 2 - 3 points. Both are significant movements for a period of a week, and portfolios that are predominantly short vega no doubt reaped the benefits (like short straddles for example). Consequently, the term structure of volatility is now steep, with front-end vols around 36 and the furthest expiry, Dec24, sitting at 55. It will be interesting to see the market’s reactions moving forward, particularly now that BTC front-end vols have returned to sub-40 levels.
Combo spread volumes this week tilt back towards BTC. Put based spread dominance recedes and it seems as though its back to the regularly scheduled programming of call spreads and strangles/straddles. Because vols continue to trend lower one can safely assume that a good chunk of this volume, especially the strangles, was likely caused by vol sellers. As BTC / ETH feign momentum, vol sellers aim to earn yield by selling into these moves and collecting premium for correctly guessing that realized volatility dies down before breaking their strike level.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of February 7th, 2024 12:00:00 UTC
***Data and insights as of February 7th, 2024 12:00:00 UTC
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