Research Summary

The report discusses the recent surge in Bitcoin and Ethereum prices, driven by factors such as the Lunar New Year, increased demand for Bitcoin spot ETFs, and anticipation of Ethereum-related events. It also highlights the role of increased margin requirements by the CME in inducing volatility and the closing of leveraged short positions. The report further analyzes the volatility spread between Ethereum and Bitcoin, option flows, and dealer gamma positioning.

Key Takeaways

Bitcoin and Ethereum’s Bullish Performance

  • Bitcoin’s Price Surge: Bitcoin’s price surpassed the critical $47,000 resistance mark, currently trading at $52,000. This surge is attributed to factors such as the Lunar New Year and the demand for Bitcoin spot ETFs, which outpaced the daily supply from mining by tenfold.
  • Ethereum’s Momentum: Ethereum is also gaining momentum, with investors shifting their focus back to it after Bitcoin’s substantial gains. Anticipation of upcoming events such as the approval of a spot ETH ETF or the Dencun upgrade in March is driving this momentum.

ETF Inflows and Asset Allocation

  • Record Inflows into Bitcoin Spot ETFs: Bitcoin spot ETFs have seen record inflows, with over 100,000 Bitcoin, or 0.5% of its total supply, being bought since their launch. This contrasts with about $2 billion outflows from Gold ETFs, suggesting a growing investor preference for cryptocurrencies.

Volatility Trends

  • Increased Realized and Implied Volatility: Crypto realized volatility increased this week, with Bitcoin surpassing $50,000 and Ethereum approaching $3,000. Implied volatility has also risen consistently, reflecting the typical positive correlation between spot price breakouts and volatility in the crypto market.

Term Structures and Volatility Spread

  • Shift in Bitcoin’s Term Structure: Bitcoin’s term structure has adjusted upwards as its price broke through the $50,000 resistance, with most expiry contracts seeing a 1-3 volatility increase, especially between April and June 2024.
  • Ethereum’s Term Structure and Volatility Spread: Ethereum’s term structure caught a solid bid as its price hit the next logical target at $3,000. The volatility spread between Ethereum and Bitcoin has maintained its premium, further increasing for long-term Ethereum volatility.

Option Flows and Dealer Gamma Positioning

  • Surge in Bitcoin Option Volumes: Bitcoin option volumes have surged by 40% this week as Bitcoin exceeded $50,000, attracting more call option buyers.
  • Ethereum’s Trading Volume and Dealer Gamma Positioning: Ethereum’s trading volume increased by over 100% to nearly $4bn as the price hit $3,000, with a focus on calls in Feb and March for gamma exposure. Ethereum’s dealer gamma returned to positive after a brief dip into negative territory.

Actionable Insights

  • Monitor the Crypto Market’s Volatility: The report suggests that the increased volatility in the crypto market, driven by factors such as the Lunar New Year and increased demand for Bitcoin spot ETFs, could present opportunities for investors. It would be beneficial to keep a close eye on these volatility trends.
  • Consider the Impact of ETF Inflows: The record inflows into Bitcoin spot ETFs and the shift in asset allocation away from Gold ETFs indicate a growing investor preference for cryptocurrencies. This trend could have significant implications for investment strategies.
  • Assess the Potential of Ethereum: With Ethereum gaining momentum and its volatility spread maintaining a premium over Bitcoin, it could be worthwhile to assess the potential of Ethereum in the current market dynamics.

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