Research Summary
The report discusses the soft start to summer trading for Bitcoin (BTC) and Ethereum (ETH), despite positive catalysts. It also covers the volatility of these cryptocurrencies, the steepening of ETH’s term structure, and the revisiting of key support by the ETH/BTC spot spread. The report further delves into the lower skew drifts for calls and the positioning of dealer gamma in option flows.
Key Takeaways
Soft Start for BTC and ETH
- Summer Trading: Despite positive catalysts such as the predicted July 2nd launch of the spot Ether ETF, BTC and ETH have had a soft start to summer trading. BTC is under additional pressure due to miners’ capitulation and potential Mt. Gox sell-offs.
Volatility and Term Structure
- Implied Volatility: BTC’s realized volatility remains in the mid-30s, while ETH’s has surged to 50. Implied volatilities are slightly softer, keeping carry positive.
- Term Structure: ETH’s term structure is steepening, with short-end vol down 5-8 vols and a slight bid in Dec24-Mar25. BTC’s term structure is shifting lower, with a 2-4 vol drop to September 2024 and around 1 vol point drop in longer maturities.
ETH/BTC Spot Spread and Skew Drifts
- Spot Spread: The ETH/BTC vol spread rises slightly for 1-month and longer maturities as BTC vols drop more significantly. The ETH/BTC spot spread is nearing support, suggesting a potential entry for call switch trades using long-term options for cheaper vol spread.
- Skew Drifts: Call skew for BTC and ETH is drifting lower as spot price action remains uninspiring. BTC call skew has faded more than ETH, which holds a higher premium for 1-month and longer.
Option Flows and Dealer Gamma Positioning
- Option Volumes: BTC option volumes are down 10% to around $8Bn, with mixed flows including year-end hedging and bullish bets. ETH volumes rose 5% to $3.4Bn, dominated by short-term call sellers avoiding the ETF potential launch date on 02Jul.
- Dealer Gamma Positioning: With ETH implied vol well above BTC, overwriters focus on this part of the curve, expecting no spike before July.
Actionable Insights
- Monitor BTC and ETH: Despite the soft start to summer trading, it’s crucial to keep an eye on BTC and ETH due to the potential impact of the spot Ether ETF launch and other market factors.
- Assess Volatility and Term Structure: The volatility of BTC and ETH, as well as the changes in their term structures, can provide insights into potential market movements and investment strategies.
- Consider Spot Spread and Skew Drifts: The ETH/BTC spot spread and skew drifts for calls can offer potential entry points for trades and hedging strategies.
- Examine Option Flows and Dealer Gamma Positioning: The changes in option volumes and dealer gamma positioning can provide valuable information for investment strategies, particularly in relation to the upcoming ETF launch.
