Market Update: 9 June 2021
The Wave 3 sell-off turned out deeper & sharper than we had initially expected — falling all the way from $59,600 on 9 May to the $30k support level within 10 days, bottoming at the big figure on 19 May. (Chart 1)
Now one month out from the Wave 3 top, technically it looks like BTC is setting a bottom for the Wave 4 rally higher.
This Wave 4 however will most likely be a slow steady consolidation grind, as the $40k level to the topside will continue to be formidable resistance in the short to medium term.
As we wrote in the past major update, all three of the bull cases for BTC have been invalidated, and it’s hard to make a bullish fundamental argument to buy BTC right now.
As such, we continue to expect the downtrend to persist and for the market to be on sell rallies mode in the near-term at least, and if Wave 4 does extend past $40k we expect the $50k to have even larger selling supply.
The option smile is pricing this as well — very steep to downside strikes and flatter towards the topside, indicating the market has a very acute fear towards sharp sell-offs but expect any rallies to be gradual and corrective.
In the near-term we’re seeing very sizeable bids across exchanges at the huge $30k support, which held up well even in the face of the sharp Monday spot sell-off coupled with large Put buying that took the put skews to the highest levels since the March collapse last year (Chart 2).
The big risk factor that could change everything for us to the downside is the CPI print on Thursday, and FOMC meeting the following week.
Recall that it was the CPI print last month, coupled with a confluence of some other factors, that started the big BTC decoupling (Chart 3). This time another large upside scare to the print will make the downside below $30k very vulnerable, and we are most concerned with that now.
There is no doubt in our mind the market is definitely quite short gamma below $30k. So we are wary of gap risk if the level breaks.
With that said, the 20k level in BTC should provide some strong support if we get there and we are very happy to continue scaling into short longer-dated puts at and below the $20k level. Because of the elevated vol & put skew, yields remain quite attractive especially with the lower yields across the crypto space in defi, funding and futures.
We no longer see a fast recovery to $50k and therefore have taken off the tactical $50k calls for a loss. BTC price looks likely to remain capped till year end.
Position-wise, we are short BTC calls at 40–50k level, long 20k puts in the front end to cover the June events and short puts around the 20k level and below.
Market seems to have settled somewhere in between downside fear and a wait and see approach. Retail volumes have thinned out and movements from whales are dominating the price action. Vols will continue to normalise if we continue to stay within this range. However, we expect interest to pick up again once we get these 2 big macro events off the calendar (Chart 4).
