Research Summary
The report discusses the rising investor optimism in Bitcoin (BTC) and Ethereum (ETH), driven by the upcoming BTC halving and robust ETF inflows. It also highlights the increasing interest in BTC and ETH futures, the volatility of these cryptocurrencies, and the shift towards put buying for March expiries. The report suggests that despite the bullish market, hedging could be a sensible strategy.
Key Takeaways
Bitcoin and Ethereum’s Rising Momentum
- Investor Optimism: The report notes that investor optimism is driving Bitcoin’s price upward, with Ethereum following suit. This optimism is fueled by the upcoming BTC halving and robust ETF inflows. The halving is expected to tighten market supply, attracting more speculators.
- ETF Inflows: Significant inflows into BTC ETFs have allowed it to surpass the $52k mark, with a target of $60k. However, there is a risk of future declines due to overleveraging.
Volatility and Interest in Cryptocurrencies
- Volatility: Bitcoin’s realized volatility dropped to 30 but has since rebounded to 40, with prices reaching 57k. Ethereum’s volatility has been more consistent around the low 50s.
- Interest in Futures: Rising open interest in BTC and ETH futures on the CME indicates strong institutional interest. ETH shows great potential, especially with an anticipated summer ETF launch.
Term Structures and Spreads
- Term Structures: The BTC term structure shows a front-end inversion, with 1-2 week expiries gaining interest due to impressive gamma performance. Ethereum’s term structure is similarly inverted but less than BTC.
- Spreads: The ETH/BTC volatility spread maintains a significant premium, favoring ETH with a 5-10 volatility advantage.
Call Skew and Option Flows
- Call Skew: BTC’s front-end call skew diminished with the test near 50k last week and hasn’t recovered yet. ETH experienced similar dynamics, with a slight put premium emerging in the front end.
- Option Flows: BTC trading volume decreased by 30% to $5.5Bn, with a shift towards put buying for March expiries. ETH’s trading volume remained steady at $4bn as prices exceeded $3,000, with March calls attracting interest.
Dealer Gamma Positioning and Hedging
- Dealer Gamma Positioning: Post-February 23, BTC dealer gamma positioning has stabilized, with current positions indicating a balanced market. Ethereum’s dealer gamma remains slightly positive.
- Hedging: Despite the bullish market, the report suggests that hedging could be a sensible strategy for those who have ridden the wave higher from last Oct/Nov.
Actionable Insights
- Monitor the Impact of BTC Halving: The upcoming BTC halving is expected to tighten market supply and attract more speculators. Investors should monitor the impact of this event on BTC’s price.
- Assess the Risk of Overleveraging: With BTC aiming for $60k, there is a risk of future declines due to overleveraging. Investors should assess this risk when making investment decisions.
- Consider the Potential of ETH: With strong institutional interest and an anticipated summer ETF launch, ETH shows great potential. Investors should consider this when diversifying their portfolios.
- Explore Hedging Strategies: Despite the bullish market, hedging could be a sensible strategy. Investors should explore short dated put spread collars to hedge longs with higher implied vols on the latest move up.
