April 13, 2023

Desk Commentary - OrnEthology

Apex cryptocurrency bitcoin built upon its indefatigable rally with additional gains of $2000 into the second week of April as markets awaited a pivotal CPI release, but ETH’s performance in the wake of the important Shapella upgrade to the Ethereum network fired a defiant shot back across the bow from the king of L1s.

Broadbased confidence in bitcoin’s 'dominance' (defined as the percentage of bitcoin market cap to total crypto market cap) is understandable, given the tranquility with which BTC has wafted higher. That poise has also been a sight to behold compared to the fitful wheel-spinning in ETH, which has evidently suffered from fears of an imminent supply inundation post-upgrade.

And indeed, the anticipatory atmosphere had seen 14th April vols jack some 15 points for ETH from a week prior and hold similarly firm for BTC, before giving up gains as CPI came in on the screws and Shapella arrived without a hitch. Farther out the curve, demand for end of month optionality out to mid curve risk on benchmark strikes for the next quarterly expiry has been entirely apathetic, and June bitcoin vols utterly melted into the mid 50s with nary a bid in sight.

In particular, Tuesday and Wednesday's trading saw 30 June ATM strikes in BTC and ETH given down with little fanfare as straddle sellers and take-profit call sales weighed on the belly of the term structure.

Yet ETH was still able to sustain an impressive 5+% rally to start the back half of the week, and in that move, wings have found better buyers in a continuation of the interests that marked bitcoin options trading before the CPI, where size clips of the ~2 month ~10 delta point garnered interest from both strike rolls, outright buys and tight call spreads. Symmetric flows hit the ETH tape 24-36 hours after that, with buyers of 25 delta calls in the April, May and notably June tenors shrugging off what’s felt like months of torpor from the overhang of overwrites as the gravitational force of >100,000 units of sold 1800-1900 calls finally starts to fade with spot north of 2000. A smattering of bids in longer dated similar-delta strikes saw Sep and Dec IVs firm marginally in sympathy in both pairs.

But perhaps the most significant observation of the week as both bitcoin and eth crested psychologically significant thresholds in rhythmic fashion is how relatively low participation has been compared to the end of March, as if players are waiting for a more material technical breakout or data driven catalyst to re-engage in further bullish plays, having already taken sizable wins in this year's +80% rally in bitcoin and, with a bit more catchup, a similar performance in ETH.

Written By

Gordan Grant

Managing Director, Trading and Sales


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