August 11, 2023

Desk Commentary - The Space Between

While Thursday's inflation data came in on the screws (again), the brace of sessions that saw robust North American demand for spot bitcoin quickly faded into fixed strike apathy as majors clung to pins at 29,500 and 1,850 with a few feckless attempts at 30,000 assiduously sold into by dealers long of gamma for the monthly expiry. The tight ranges in Asia that have come to connect the New York trading day feel as exciting as interstitial tissue, and in that vein vols have tended to remain relatively supported only for BTC, which now trades nearly 5 points over ETH, depending on the tenor for both ATMs and 25 delta skews.

That's partly due to incessant taker appetite for mid-curve upside, including a raft of buys in the 2-month and 4-month bucket at the quarter delta point, which saw over $50,000 in vega hoovered with ease on Wednesday, with screen offers evaporating thereafter. Yet the failure to break through 30,000 brought a resounding thud from IVs as eastern hemisphere dealers streamed tighter offers and chased IVs 1-3 points lower by the time CPI broke cover.

Overall, notwithstanding a minor pickup in realized, options block flows for the week remained mixed with dominant selling of firmer August front-end expiries which printed in a flurry at over 38 IV on Tuesday's close and determined sellers of 11th August weeklies at ~40% the day after set against the aforementioned buying of the October tenor in keeping with pundit prognostications of ETF approvals being in the offing. Only when skew reached some five vols over for calls did risk reversal sellers emerge in constant clips of 100, which met eager demand from a street short of Halloween-spec upside.

ETH has seen apathetic clean-up bids throughout the week, with takers tranching multi clips to get in size September near-ATM as well as October and December wing calls, with most makers ostensibly happy to let go of underperforming ETH IVs, which had cratered below 35% for the 29th December contract coming into the New York close on Thursday.

By contrast, bitcoin's narrative strength coalesced around a bevy of tier 1 (BONY + State Street) bank ratings watch downgrades by Moodys, which commentators largely ignored as executives find it perhaps more difficult to denounce as outdated and irrelevant. While Bloomberg analysts noted shifting sands in crypto correlations to gold and equities, Bitcoin appears - at least incipiently from some perspectives - to be feeding off of growing geopolitical and macro angst compounded by last week's sovereign credit rating adjustment, a forthcoming Russian CBDC, global food shortages, burgeoning migrant crises, renewed escalations in Ukraine and Sudan, and fresh tensions in the Persian Gulf. Fundstrat forecasts of a $180,000 price target testify to such sentiment.

And while the summer's somnolent price action seems to beg for a breakout, on the whole, market participants have been more than willing to take a later, not now stance, notwithstanding the noteworthy and growing cadre of establishment cheerleaders like Larry Fink and just this week, David Rubenstein, who opined that bitcoin's self-sovereign characteristics lend it permanency, while lamenting that he should have bought bitcoin sooner. Time was, these were the mutterings of maximalists, not establishment players, which begs the question of whether crypto natives are reflexively fading TradFi infiltration at their own peril.

Written By

Gordan Grant

Managing Director, Trading and Sales


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