Research Summary
The report analyzes the recent surge in cryptocurrency prices, particularly Bitcoin (BTC) and Ethereum (ETH), following an assassination attempt on Donald Trump. It discusses the impact of this event on the crypto market, the role of Trump’s pro-crypto stance, and the upcoming ETH ETF launch. The report also examines the volatility, term structure, and option flows in the crypto market.
Key Takeaways
Trump’s Impact on Crypto Market
- Trump’s Influence: The failed assassination attempt on Donald Trump has sparked a surge in the crypto market, with Bitcoin hitting $65K and Ethereum reaching $3.5K. The market anticipates increased support for Trump, recalling a similar boost for Reagan in 1981. Trump’s pro-crypto stance and the exhaustion of Germany’s Bitcoin supply have also contributed to the rally.
Volatility and Term Structure
- Volatility Spikes: While realized volatility in the crypto market has decreased to the mid-40s, implied volatility has spiked due to the Trump event, pushing Bitcoin and Ethereum into positive carry. Despite range-bound trading, significant headline risks make it unwise to short gamma.
- Term Structure: The curve steepened into contango last week, but the spike in prices has caused the front end to pop and the curve to flatten out again. This is more pronounced in Ethereum, where the front was already more elevated than Bitcoin.
ETH/BTC Vol Spread and Skew Convergence
- Vol Spread: The Ethereum/Bitcoin volatility spread has been high, especially ahead of the ETF launch, predicting a strong Ethereum rally. However, the spread dropped this week as Bitcoin volatility rose due to the “Trump effect”.
- Skew Convergence: Weekly put skew vanished with rallies in Bitcoin and Ethereum, notably in Bitcoin, which dropped from 15 vols. Skew across assets converged as the market sees the Trump narrative boosting Bitcoin alongside Ethereum’s ETF launch.
Option Flows
- Option Volumes: Bitcoin option volumes decreased 25% to $7Bn, with active trading in December upside calls around the 100K strike. Ethereum volumes dropped 33% to $1.8Bn, dominated by call flows, particularly 30Aug 3200 calls for the ETF launch, alongside closer-to-money call selling and 26Jul spreads for sale.
Actionable Insights
- Monitor the ETH ETF Launch: The upcoming Ethereum ETF launch on July 23rd could lead to more potential upside action if the inflows become higher-than-anticipated. It’s also predicted to cause more volatility reset for Ethereum post-launch.
- Consider the Impact of Headline Risks: Despite range-bound trading, significant headline risks, such as political events, can cause spikes in implied volatility. It’s important to consider these risks when making investment decisions in the crypto market.
- Observe Option Flows: Changes in option volumes and trading patterns can provide insights into market sentiment and potential price movements. For instance, the decrease in Bitcoin option volumes and the dominance of call flows in Ethereum volumes could indicate market expectations for these cryptocurrencies.
