Research Summary
The report discusses the current state of Bitcoin and Ethereum, focusing on their volatility, market risks, and the impact of recent events such as the launch of Bitcoin ETFs and potential liquidations by Celsius and Genesis. It also provides insights into the volatility spread between Ethereum and Bitcoin, and suggests potential trading strategies.
Key Takeaways
Bitcoin’s Resilience Amid Market Changes
- Bitcoin’s Stability: Despite the launch of Bitcoin ETFs and the transition of the GBTC product to a spot ETF, Bitcoin has managed to stay above the $42,000 threshold. The market saw a brief dip below $40,000, but it quickly recalibrated.
- ETF Inflows Outshine Grayscale Outflows: The report highlights that Bitcoin ETFs experienced a net positive influx of $701m in the previous week, overshadowing Grayscale’s $600 million outflow.
Market Risks and Volatility
- Potential Liquidation Risks: The report points out potential immediate price risks for Bitcoin, particularly with the potential liquidation of assets by Celsius and Genesis. These liquidations could trigger some downside volatility.
- Volatility Trends: Cryptocurrency volatility has subsided this week, with market prices stabilizing. Implied volatilities dipped but have now levelled off, making gamma selling appealing.
Term Structure and Volatility Spread
- Term Structure: Bitcoin’s term structure is falling deeper into contango, with a notable drop in front-end volatilities. Ethereum’s term structure is also steepening with lower front-end volatility.
- Volatility Spread: The volatility spread between Ethereum and Bitcoin is neutral short-term but slightly favours Ethereum in the long-term. The report suggests owning the long-term vol spread favouring Ethereum over Bitcoin.
Option Flows and Dealer Gamma Positioning
- Option Volumes: Bitcoin option volumes rose by 10%, with calls prevailing. Ethereum’s volume was up by 12%, also call-dominated.
- Dealer Gamma Positions: Dealer gamma positions for Bitcoin remains balanced, while Ethereum’s is still heavily long due to significant on-screen call selling.
Strategy Compass
- Seasonal Pattern: The report flags a seasonal pattern around Chinese New Year in BTC, which has the potential to bring a 5-10% rally over the next couple of weeks.
Actionable Insights
- Monitor Potential Liquidations: Investors should keep an eye on the potential liquidation of assets by Celsius and Genesis, as these could impact Bitcoin’s price.
- Consider Volatility Trends: With cryptocurrency volatility subsiding, investors might want to consider strategies that take advantage of the current volatility trends, such as gamma selling.
- Assess Volatility Spread: The report suggests that owning the long-term vol spread favouring Ethereum over Bitcoin could be a sensible move. Investors might want to assess this strategy based on their risk tolerance and investment goals.
- Track Option Flows and Dealer Gamma Positioning: Investors should track option volumes and dealer gamma positions for Bitcoin and Ethereum, as these could provide insights into market trends and potential investment strategies.
- Consider Seasonal Patterns: The potential for a 5-10% rally in BTC around Chinese New Year could present an opportunity for investors. It might be worth considering strategies that could benefit from this potential rally.
