Market Update: 16 Sep 2021
Some excitement on Monday with the leaked Walmart partnership with Litecoin which turned out to be fake news. BTC rallied to a high of 46,900 then quickly dipped to 43,465. Sign of a market starving for a directional catalyst.
In other news, Solana network went offline for more than half a day on Tuesday. We were pleasantly surprised by the price resilience and stability in SOL -Chart 1- (but secretly hoping for a massive dip for our long gamma position). Sign of underlying bullish sentiment in spite of last week’s correction.
Also, Tether announced that their underlying assets do not include Evergrande issued commercial paper. This provided some relief from the rumours going around that Tether was facing insolvency from exposure to Evergrande’s $300 billion in liabilities.
Overall, relatively quiet week in the forwards and options space. Funding rates have normalised from slightly negative to flat levels (Chart 2). We’ve seen healthy spot buying demand in BTC, ETH and altcoins on the desk. But we’ve also seen decent profit-taking in calls at current levels. Mixed signals.
Risk reversals remain skewed to the downside, ie puts more expensive than calls (Chart 3) and vol term structure is steepening; a function of shorter-tenor options getting sold off more than longer tenor options (Chart 4).
The mixed signals (or perhaps lack of signals) points to a consolidating market possibly in the 45–53k range for BTC in the near-term (50.0%-78.6% Fibonacci Retracement Levels, Chart 5).
We flipped to short gamma in BTC and ETH on the back of the volatility on Monday and Tuesday. The short gamma and vega has helped buffer the decay (theta) on our long gamma and long vega positions in BCH, SOL, LUNA, ALGO and DOGE.
We intend to take profit on the short gamma and vega towards the end of September (which is also quarter end) due the possibility of a higher volatility environment into the massive end-month expiry (Chart 6) and also in light of macro uncertainty in Q4.
At these levels we have turned slightly short spot as well in BTC and ETH against our long spot positions in the Alts.
The top performer for us this week has been DYDX (about 80% higher from Monday lows). We have a decent sized position from our participation in the last funding round and remain bullish even at these levels.
