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- Market Data #11 - New Years Special
Market Data #11 - New Years Special
TLDR: New Year, New Products, Spot ETF Incoming
Happy New Year and welcome to the first edition of the Premia x Marty newsletter in 2024!
We wish to thank everyone for sticking with us and navigating the turbulent 2023 bear market with the Marty blog. Since we began writing these early last year, there are now over 4000 readers of the newsletter.
Here’s to another great year — the alfa is officially free in 2024 (on Mondays).
Please note that Premia does not provide investment advice, and nothing herein should be construed as such. Anyone considering trading or holding derivatives or crypto assets should be aware that the risk of loss can be very high, and it is upon each individual to seek advice from an appropriate professional advisor.
TLDR: New Year, New Products, ETF Incoming
BTC ATM IV
Index Price: $42,697
ETH ATM IV
Index Price: $2,302
Things To Pay Attention To:
January 3rd - Wednesday
FOMC Minutes - 2:00pm EST
January 4th - Thursday
U.S. Unemployment Claims - 8:30am EST
January 11th - Thursday
U.S. CPI - 8:30am EST
January 12th - Friday
U.S. PPI - 8:30am EST
New Year, New Vols
Our lovely designer is on a well-deserved vacation. We’ll have to make do with a plain table this time, pimps.
Happy New Year from my family to yours. In this update, we present the top GreeksLive Trades from the GreeksLive Marketplace. It's interesting to observe the widespread adoption of near-dated put strategies. Notably, most of these strategies are near the money, not far out. We will continue to provide updates on the positioning of larger players leading up to the ETF event.
BTC IV Structure
As shown above, ATM (At-the-Money) vols have recently aligned with forward vols, a shift from a few weeks ago when forward vols were notably higher. Let's quickly clarify the distinction between ATM and Forward vols. ATM volatility reflects current market expectations of volatility, based on the prices of options whose strike prices are near the underlying asset's current price. This provides a snapshot of immediate market sentiment. On the other hand, Forward volatility measures the expected implied volatility of a product for a future period, determined from the term structure of volatility.
While ATM volatility is a critical tool for gauging short-term market mood, Forward volatility is essential for assessing and predicting trends in volatility over the longer term in the options market. I understand ATM vs Forward Vol might be confusing, so the next Masterclass in the Premia Academy will include related content.
BTC ATM IV
ETH ATM IV
As the Spot BTC ETF event approaches, we're witnessing a noticeable climb in the implied volatility for both BTC and ETH. The potential approval of a BTC ETF could signal a pathway for a future ETH Spot ETF, a development many in the markets are currently anticipating.
Despite this, there's a prevailing skepticism, including my own view, that the speculation surrounding these products might be more hype than substance. As we’ve mentioned in previous newsletters, the real demand for trading these ETFs remains questionable.
It's possible that the excitement pre-event could lead to disappointment post-event.
On the day of the event, while we expect a spike in volatility, it's likely that the market will quickly adjust and the initial hype of activity will soon settle down. That being said, stay careful out there, make sure your collateral and book is OK to ride out (or participate in) the event.
With Barry Silbert stepping down, Grayscale appears to be preparing for a significant transformation of their flagship product, GBTC. As highlighted in our last newsletter, the discount on GBTC, which once exceeded 50%, is steadily narrowing, slowly moving closer to zero.
This shift suggests an increase in investor confidence and anticipation of a transition to a spot ETF. Such a transition could bring substantial benefits, including reduced management fees and making GBTC shares redeemable. This change would align GBTC more closely with the underlying Bitcoin market, potentially increasing its appeal to a broader range of investors. Additionally, the conversion to a spot ETF could enhance liquidity and market efficiency, making it a more attractive investment vehicle for both retail and institutional investors.
The market is closely watching these developments, as they could have far-reaching implications for the digital asset space and for ETF market dynamics overall.
BTC CME Annualized Basis
The annualized basis in BTC basis trading has risen near 20%, reflecting a significant shift in market dynamics. This increase suggests bullish sentiment, as traders are willing to pay a premium for futures over the current spot price. To capitalize on this, traders can execute a basis trade which involves simultaneously buying Bitcoin in the spot market and selling Bitcoin futures.
BTC CME Futures OI
BTC CME Futures Volume
BTC CME Options Volume
BTC CME Options Open Interest
As we head into the biggest TradFi crypto event (so far), I thought it was appropriate to cover all the CME data. As we only show BTC here to save some time for our readers, it’s worth mentioning that ETH data looks the same. CME open interest is climbing, for both Futures and Options. This is something we want to keep an eye on as a Spot ETF comes into play. We are expecting CME OI and volume to increase post-event as people begin to hedge out their spot exposure.
As we've been gearing up for this moment after a year of focused writing and analysis, the anticipated catalysts are now coming into play.
During the low volatility regime, our attention was on events that could reinvigorate market activity. We identified 2024 as a key year due to natural catalysts, including the BTC halving, the US election year, and the approval of a spot ETF. Moving into the new year, I expect an increase of Spot ETF products to hit the market. Following the approval of the first one, others will follow, with the first ETF capturing a significant market share. Looking towards the US election, I don't anticipate a market crash… though volatility might fluctuate, I believe prices will maintain or rise.
This is shaping up to be a transformative period in the cryptocurrency market, potentially altering the landscape of investment and trading in new institutional ways. You all wanted institutions to come, now they are here…
As I have been writing about the Spot ETF and its hopium, I want to make the record clear. As I believe the event is getting to much hype into the day of the event, it is always good for new products to enter the market. New products for people to trade allows new participation in the space, and personally, I always welcome this. Such developments, despite the hype, are vital for the continued growth and evolution of the market, offering new avenues for investment and potentially reshaping market dynamics. I am most looking forward to options on the new spot products.
Options on a spot product are much better than trading a Frankenstein product like BITO. Fun fact: BITO pays a dividend.
Recap: New Year, New Products
CME interest Climbing
Spot ETF coming
ATM Vol closing gap to Forwards
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