Research Summary

The report discusses the recent bearish turn in the crypto market, with significant drops in BTC and ETH prices. It highlights the lack of strong narratives in the current market, increased volatility, and the impact of the delayed ETF launch. The report also provides insights into trading volumes, option flows, and the potential for recovery once the supply overhang clears.

Key Takeaways

Bearish Market Conditions

  • Significant Price Drops: BTC and ETH prices have fallen significantly, with BTC dropping below the crucial $60k level. The anticipated ETH ETF launch has not prevented ETH’s decline, as BTC’s fall has dragged the entire market down.
  • Lack of Strong Narratives: The current crypto market lacks strong narratives and is facing selling pressure from Mt Gox creditors and the German Government.

Increased Volatility

  • Realized Volatility Spikes: Crypto volatility has surged, with BTC and ETH seeing realized volatility spikes of 15 and 30 points, respectively. Implied volatility has also increased significantly, reflecting market nervousness.
  • Inverted Term Structures: BTC’s term structure inverted as spot prices fell, with short-dated volatility rising by 15 points. ETH’s term structure mirrored BTC’s, with short-term volatility up 20 points.

ETF Launch Impact

  • Delayed ETF Launch: The ETF launch has been delayed but is expected soon. This delay has kept the volatility spread high, making ETH resilient in recent days.
  • Post-Launch Expectations: After the ETF launch, a volatility reset to sub-10 vols is expected, though the extent of spot movement remains uncertain.

Trading Volumes and Option Flows

  • Increased Trading Volumes: Trading volumes rose 16% to $9.5Bn, with protection buying in the $58k to $52k range for BTC. ETH volumes hit $2.7Bn as the ETF launch was delayed another week.
  • Shift in Option Flows: Long-dated premiums shifted, with OTM Dec and Mar25 calls moving from $90-100k to $62-75k. Call flows shifted from July to Sep and Dec strikes around $3000/4000, with 26Jul being popular for downside hedges below $3000.

Market Recovery Potential

  • Positive Year’s Performance: Despite the recent drops, the year’s performance is still positive. A strong recovery is expected once the supply overhang clears.
  • Long-Term Bullish Outlook: Long-term call premiums persist, reflecting a bullish outlook despite market drops. This steep skew term structure is becoming typical in such market conditions.

Actionable Insights

  • Monitor Market Volatility: The increased volatility in the crypto market, particularly for BTC and ETH, indicates a need for investors to closely monitor market movements and adjust their strategies accordingly.
  • Consider Hedging Strategies: Given the bearish market conditions and increased volatility, investors may want to consider hedging strategies to protect their investments.
  • Anticipate ETF Launch Impact: The delayed ETF launch is expected to have a significant impact on the market. Investors should anticipate this event and its potential effects on their portfolio.

Related Research