Market Update: 26 Mar 2022
We turned bullish last week on the positive price action post-FOMC and the market has really followed through. BTC rallied 12.5%, breaking above 45,000 and ETH rallied over 16% to 3,195 high today.
One notable buy flow this week was the 125 million USDT purchase of BTC by Luna Foundation Guard (LFG). This purchase is part of the plan to systematically accumulate a total 3 billion USD worth of BTC as a reserve for TerraUSD (UST).
This comes on the back of a broader rally in global asset prices. And the bullish momentum is likely to continue in the near-term.
A buy signal was triggered this week on Bank of America’s Bull & Bear Indicator (the last buy signal was in March 2020). This means that the rally has some legs as the market recovers from extremely oversold conditions. This signal has worked well in the past with equities rallying 8% on average in the 12 weeks following the signal. (Chart 1)
In vols, this bullish sentiment flip was most clearly seen in ETH front-end risk reversals (calls minus puts) which rallied a whopping 12% from -16% to -4%. This is somewhat expected as the narrative around the coming ETH merge has been building and the market continues to unwind FOMC-related downside protection.
Short vega (longer-term options) has been a real winner with the usual quarter-end vol compression. From last week BTC 1-month implieds have dropped 18% from 76% to 58% and ETH 1-month implieds down 22% from 90% to 68%.
We’ve started taking profit on our core short vega position and will continue to lighten up towards the US CPI print on 12 April.
We are now long gamma (short-term options) in both ETH and Alts and hoping for some explosive short-covering in the coming week. SRM calls have performed well for us this week as spot rallied almost 70% on positive developments around the DEX.
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As the Avalanche Summit comes to a close, we’d like to give a shoutout to the Avalanche team for a great conference at the most stunning venue we’ve ever seen. The QCP team will be heading back to Singapore for a few days before taking off for Bitcoin Miami.