If anyone had any doubt that the crypto market is becoming institutional, our option desk traded over $2 billion in options just this week.
The flows have mostly been decent two-way in BTC and ETH but we’ve also seen notable OTC flows in ALGO and LUNA (no surprise as liquidity is streaming out of the two largest Altcoin Defi Option Vaults).
In the past week, panic and nervousness have been leaving the market with vols generally easing (Chart 1) and BTC risk reversals turning up from -7% to -2% before settling around -5% as we head into FOMC (Chart 2).
Our view into this upcoming FOMC and beyond is that the market is less prepared for a dovish-leaning Fed and would be possibly caught by surprise on a sharp move higher in price. We think that a short-squeeze into the year-end or early January is very possible.
From an Elliot Wave perspective, we see this move higher as either
i. the final wave (5) to end this cycle (Chart 3) which would see BTC breaking the previous high of 69,000
ii. or wave (B) of a corrective phase (Chart 4) in which BTC would fail to break the previous high and then take another leg lower.
Bullish divergences in ETH (Chart 5) support our bullish bias and we expect both ETH and Altcoins to outperform on a short squeeze.
We are keeping our books fairly nimble. Given our long bias and view of a possible squeeze, we are keeping long delta (spot), nett neutral vega (short vol in BTC & ETH against long vol in Altcoins) and distinctly long gamma (shorter-term options) to profit from any sharp moves. (Long gamma in DOGE has performed particularly well for us this week thanks to Elon Musk’s tweet)
FOMC press conference starts in 1 hour. Good luck everyone!