A tough week for crypto markets:
- US & EU regulators look to impose tighter regulations in response to crypto becoming increasingly identified as a means to bypass international sanctions.
- Further escalation of the Russo-Ukranian conflict saw crude oil prices spike close to 130 USD. Exacerbated inflation heightens the risk of recession combined with an even more hawkish Fed. Markets reacted badly with equities selling off hard and BTC fell back under the 40,000 level.
- Just earlier today, Putin banned the exports of products and raw materials until the end of the year. The risk of a protracted inflationary environment hangs over markets.
- Andre Cronje, a principal figure in the DeFi ecosystem, announced that he is stepping away from crypto. Alts took a beating as ETHBTC closes in on the 0.65 level.
One silver lining has been the increased activity in the crypto vol market. Naturally, there has been overwhleming demand for front-end vols, especially 18 March expiries which cover US CPI and the ECB conference tomorrow as well as the FOMC rate decision next Wednesday, 16 March.
In particular, we’ve seen demand for:
- ETH 18 March 2,200 puts. Over 30,000x contracts traded earlier today in Asia morning alone! (Chart 1)
2. ETH end-March 3,000 calls. 20,000x contracts traded earlier in Asia evening.
3. BTC 18 March 34,000/40,000 strangle. At least 1,000x traded by a Chinese trading desk earlier in Asia afternoon.
4. ETH December vols as well. Implieds have rallied close to 85% from 77% last week. (Chart 2)
We’ve managed to take some profit nicely on our 18 March long vol position but the elevated vols have not been pleasant for our overall short vega (longer-term options) position.
We plan to keep fairly nimble amidst the geopolitical uncertainty and significant risk events in the next two weeks. We remain nett short vega. Long gamma (short-term options) in the Alts and long on the wings (far-strike options).
Our longer-term bullish conviction in crypto (especially DeFi) continues to get stronger. We reckon any Russian or resident of fringe, non-NATO countries would be seriously thinking about moving assets out of the traditional finance system and into crypto or DeFi.
The fact that crypto has become something of a ‘safe haven’ for this segment of assets should give everyone some food for thought.