Research Summary
The report by Tony Stewart discusses the impact of continued BTC ETF net inflows on market support. It also highlights the subdued BTC option flow, the rangebound trading for majors, and the performance of ETH spot. The report further delves into the technical trades and the strategies employed by liquidity providers and funds.
Key Takeaways
Impact of BTC ETF Net Inflows on Market Support
- Positive Influence of BTC ETF Inflows: The report notes that seven days of BTC ETF net inflows have helped support the market in terms of buys and sentiment. However, BTC option flow has been more technical than directionally informative, with low RV punishing holders of optionality.
Rangebound Trading and Its Effects
- Impact of Rangebound Trading: The report indicates that rangebound trading for major cryptocurrencies has resulted in lower Realized Volatility (RV), which in turn has pulled down Implied Volatility (IV). This has led to decay and Gamma losses at the front end, punishing long-holders of optionality.
Technical Trades and Strategies
- Technical Trades: The report observes that technical trades have been selling calendars, i.e., selling April+June to buy Feb shorts. A structural BTC trade was executed two weeks back to buy April and sell ratioed Feb Strangles, which was rolled back via selling the April 34-55k Strangle to buy back Feb Gamma via the Feb 41-45k Strangle x1.5k.
Strategies of Liquidity Providers and Funds
- Liquidity Providers’ Approach: According to the report, liquidity providers have generally been content to sell Vega+Gamma in this rangebound market. However, there is clear evidence of flows (not impacting IV) where funds have been nibbling at these IV levels.
- Funds’ Activity: The report notes that BTC Jun 40-55k Strangle, Jun 30k Puts, Mar 50k Calls have all been bought into drifting IV levels.
Performance of ETH Spot
- ETH Spot Performance: The report highlights that ETH Spot has started to perform, possibly due to BTC strength, ETF narrative, or ETH staking demand. This triggered an ETH Feb 2.5k Call short-cover last week and at 2350+ trading level now must be of concern to force some reaction to the large short in the ETH Feb 2.4k Calls.
Actionable Insights
- Monitor BTC ETF Inflows: Given the positive influence of BTC ETF inflows on market support, it would be prudent to keep a close watch on these inflows and their potential impact on market sentiment.
- Understand the Impact of Rangebound Trading: Understanding the effects of rangebound trading on Realized and Implied Volatility can provide insights into potential risks and opportunities in the market.
- Study Technical Trades and Strategies: Analyzing the technical trades and strategies employed in the market can offer valuable insights into market trends and potential investment strategies.
- Observe Liquidity Providers and Funds’ Strategies: Observing the strategies of liquidity providers and funds can provide a deeper understanding of market dynamics and potential shifts in market sentiment.
- Track ETH Spot Performance: Tracking the performance of ETH Spot can provide insights into potential market trends and investment opportunities.
