Research Summary
The report discusses the current weak phase in the crypto market, with a focus on Bitcoin (BTC) and Ethereum (ETH). It explores the impact of ETF launches, institutional adoption, and upcoming technical upgrades on these cryptocurrencies. The report also analyzes volatility, term structures, and dealer gamma positioning, providing insights into potential investment strategies.
Key Takeaways
Market Weakness Amid ETF Narrative
- Current Market State: The crypto market is experiencing a weak phase, with both BTC and ETH, along with the broader altcoin market, showing declines. BTC’s break below the 40k support level signals a potential decline to 38k or even 35k.
- ETF Impact: The lackluster inflows into spot BTC ETFs, despite high trading volumes, have dampened BTC sentiment. This is partly due to a shift from older crypto products and stocks into new ETFs.
Volatility Reset and Term Structures
- Volatility Reset: The excitement around the BTC ETF has cooled, causing a significant drop in crypto volatility, with BTC and ETH returning to the 40 vols range. However, volatility is slightly increasing as BTC and ETH break through key levels of 40k and 2,400, respectively.
- Term Structures: The BTC term structure is lowering slightly but remains backwardated at the front end. ETH’s term structure is experiencing similar but more pronounced changes than BTC.
ETH/BTC Vol Spread and Skew
- Vol Spread: The ETH/BTC volatility spread has significantly narrowed, returning to nearly flat across the curve. This is primarily due to excessive ETH overwriting flows that the market couldn’t fully absorb.
- Skew: The BTC skew term structure remained stable, while ETH skew saw more dramatic movements, reflecting the influence of call selling flows and the break of key technical support at 2400.
Option Flows and Dealer Gamma Positioning
- Option Flows: BTC options volumes decreased by 60% as excitement around the ETF waned and spot prices fell below 40k. ETH saw a 20% reduction in volumes, with significant overwriting flows and selling of VEGA in March and April on 2900 calls.
- Dealer Gamma Positioning: BTC dealer gamma positioning remained negative, indicating dynamic market activity. ETH dealer gamma varied but closed higher due to a mix of overwriting and weekly gamma selling.
Investment Strategy
- Strategy Outlook: The report suggests that picking up longer-dated ETH upside looks attractive for fresh long exposure and could be financed by selling BTC upside. It also recommends maintaining some hedges on BTC, which will enable adding risk, should levels near 36k be reached on a positioning flush out.
Actionable Insights
- Monitor Market Trends: Keep an eye on the crypto market trends, particularly the volatility and term structures of BTC and ETH. These can provide insights into potential investment strategies.
- Assess ETH/BTC Vol Spread: The significant narrowing of the ETH/BTC volatility spread could present opportunities. However, it’s important to consider the potential volatility in this spread.
- Consider Dealer Gamma Positioning: The dealer gamma positioning for both BTC and ETH can provide insights into market activity and potential investment strategies.
