Correlation Breaks as Crypto Stages a Comeback

In this week's Crypto Insight I discussed...


Some strong price performance in crypto this week, particularly over the weekend. This move was independent of equities which have remained heavy this week signalling some true demand for crypto rather than just macro beta. The main news flow has been India imposing taxes on crypto, which ironically has legitimised the space, after they had been talking about banning it last year.


ETH after recovering strongly to 2800 first resistance, broke through over the weekend to touch 3200. I have been buying some put protection on ETH as detailed in my recent trading tutorial. I just think the risk reward with vol so low and potentially a big down leg remaining to complete this move, owning short, dated puts looking compelling here.


Key takeaways from the on-chain metrics this week are

1. Looking at where bitcoins have changed hands, we see that 25% of supply are in loss, which provide a bit of an overhang and prevent prices from rallying hard absent a clear catalyst. 2. Short term holders have returned to profitability, but will they run for the exits at first sign of trouble or are they in it for the long haul? 3. Short liquidations have continued to dominate in the recent rally but no massive drop in open interest suggest many futures positions may now be a result of options hedging flow rather than speculative leverage.


Week on week, term structure is quite changed with gamma actually bid up. This doesn’t really tell the story as implied vols got crushed into the weekend, even as crypto markets were breaking higher. This shows the overwhelming supply of gamma that has been flooding the street. As the weekend move materialised, vols caught a small bid on Monday as gamma was just too cheap not to buy!


The long gamma positioning is concentrated around 41-43k in BTC and 3000-3200 in ETH from weekly expiry options. As can be seen from the dominant options flows


Put skew continued to fall across expiries as markets turned a bit bullish.

Filmed on on Tuesday 8th February 2022.

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