May 11, 2023

Desk Commentary - In(ter)ference

The modus operandi in crypto optionality has developed an increasingly fetid fragrance as May wears on with no meaningful breakout in majors and as one macro data point after another magically comes in on or near the screws.

The midweek session of 10th May saw a smidge softer CPI nearly ignite a renewed impetus to push above stiff resistance at 28000, blowing through offers with bitcoin spot settling in near 28250 and ether at 1875 as the New York morning wore on.

Leading up to Wednesday’s data release, the market saw plays to purchase breakout exposure with flows such as socially sized 26th May 20-delta downside in bitcoin and a flurry of cumulatively chunky clips of ether 28th July 25 delta calls, followed by inquires from directional players in month-end 30,000 strikes. But true to form, owing to one catalyst or another, ranges have thus far been respected both pre- and post-Powell, and the latest session proved the rule: a violent $1500 mid-day drop in bitcoin punctuated a palpable sense that external forces may continue to send cryptocurrencies reeling in a diabolical rendition of deus ex machina.

With the vacuum plunge lacking other plausible alternative extenuations, crypto intelligencer Arkham released a report that Silk Road bitcoin wallets had been activated, presumably prefacing another heavy-handed liquidation as was seen in early March and late April. It remains to be seen whether on-chain sleuths can attest to this latest slide as a public sector trigger-pull. Still, it’s now become something of an established pattern that bitcoin dumped on the market from federal coffers is often (if not always) a dip which, ever since the earliest days of the infamous auction in which Tim Draper loaded his bags, should be bought. Yet the abbreviated action from 28300 to 26800 and back to 27700 in practice left little time to strap on material risk. The tape did, however, evince punctual, high-conviction (and high-alpha) punts on Friday 28000 puts followed by a barrage of 26500 and 27000 strike sales as spot firmed up off the lows, with gamma struggling to find buyers at the 50% price point, even with a 5% move in less than an hour.

Meanwhile, other asset classes have tended toward comparative tranquility with limited exceptions as sometime crypto-correlates cling to key levels ($2000 in gold, $25 in silver, and $75 in crude).

With macro storm clouds on the horizon in the form of a looming debt-ceiling standdown, an imminent migrant inundation on America’s southern border, another Ukrainian offensive, a hot-button election in geopolitical swing-state Turkey, and a smoldering sectarian conflict in Sudan, the stage seems set for more surprises to come this quarter. It’s an altogether fitting time for a scathing appraisal of the prospects of any possible return to fiscal rectitude by the U.S. government from macro legend Stanley Druckenmiller, who espoused a hard money bent to his own portfolio, with length in gold and silver apparently complementing his past praise for bitcoin.

In that vein, the Genesis trading desk has seen stalwart crypto-native interest in longer-dated lower-delta bitcoin wings as, among other things, a hedge for unknowns, both known and unknown, in something of an affirmation that the abovementioned assumed toxic cocktail of events would seem to make the case that there have been worse times to long volatility at cyclical lows.

Written By

Gordan Grant

Managing Director, Trading and Sales


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