Market Update: 15 Mar 2021

We were a few days early in positioning for the mid-March reversal, as right after option expiry on Friday there was a leveraged-driven short squeeze that took out the prior highs in both the BTC spot price as well as total futures open interest (Chart 1).

The fresh all-time high on Saturday above $60k, coupled with the closure of traditional markets that has recently kept BTC yoked, meant a hopeful chase by retail participants that took BTC to a high of $61,800 and driving the perp funding rate to the typically unsustainable maximum 200% annualized level (Chart 2). The 3m futures basis as well jumped to all-time highs at over 35% annualized on this leverage retail buying (Chart 3).

ETH as well, taking cue from BTC, failed just under the huge $2k spot level (Chart 4), and we expect it to largely underperform BTC from here — with our sights set on the ETHBTC cross possibly breaking its 14-month uptrend line and retesting the long-term support at 0.023 (Chart 5).

Thursday we have the big FOMC meeting — where expectations are for the Fed to signal an earlier lift-off of rates through their dot plot. Nominal rates have already resumed their climb in expectation of this (Chart 6), and we expect risk markets to pay heed to this ahead of the meeting itself.

In terms of positioning, we are long end-Mar $54k puts from the middle of last week as well as short calls above $60k put on earlier in the quarter. We like to keep these as the core tactical position for now, playing for the weak March seasonality and risk of a mini taper tantrum post-Thursday’s meeting.

On a deeper pullback, we still see the $40–42k BTC spot level as key to maintaining our medium-term bullish view (Chart 7), and have longer tenor short puts just under that level for a short uneven (different strike level) BTC calendar put spread. Of equal note to March’s weak seasonality is the strong April seasonality (in fact the strongest of all seasonalities) where we have had a positive April in each of the past 5 years (Chart 8). Thus our current positioning is one where our long puts and short calls expire by 2 Apr, and we keep the upside open going into April & May.

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