Market Data by Premia x Marty: #6

Greetings, Premians!

Welcome to the sixth instalment of the Premia x Marty monthly Market Data newsletter. As always, we appreciate your readership and welcome any feedback to enhance future editions. Feel free to reach out to us via the Premia Discord or Twitter!

Over the past month, cryptocurrency markets have shown surprising price stability, with less fluctuation than anticipated, causing volatility to be down and to the right. Current market positioning suggests a mix of hope and caution, with an interest in long dated Vega buys indicating readiness for potential future volatility.

Please note, Premia does not provide any 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: Vol Bottomless

• BTC $28922.52 (74.95% YTD)

• ETH $1834.44 (53.46% YTD)

• NDX $15757.0 (42.75% YTD)

• SPX $4588.97 (19.09% YTD)

• XAU $1964.37 (7.73% YTD)

Premia All-time volume: $363.01m

BTC ATM IV

Index Price: $28922.52

• 1W: 30.66%

• 1M: 32.45%

• 3M: 37.43%

• 6M: 44.27%

ETH ATM IV

Index Price: $1834.44

• 1W: 31.11%

• 1M: 32.19%

• 3M: 36.90%

• 6M: 42.91%

Simply put, stocks rip higher as crypto is flat. Company layoffs at the beginning of the year allowed more stock buybacks, followed by the new AI narrative and the hopes or a FED rate pause or cut has pushed tradition markets higher. It is worth stating that Crypto is up more from YTD that stock indices, but individual tech stocks have been the driving factor of the stock rally.

Rolling Correlation

June was an interesting month as we lookback, with the end of the XRP/SEC lawsuit, where XRP was declared not a security for retail but a security for private offerings, surprisingly didn't ignite the volatility many had anticipated. Despite the legal clarity this ruling brings, the market has been remarkably boring, with Bitcoin slowly drifting down from 30k to roughly 29k.

The calm reaction from the market was also mirrored after the news of a new Blackrock ETF. This suggests that investors might be adopting a more measured approach, potentially waiting for these developments to demonstrate more impacts on the cryptocurrency landscape. Simply, they are waiting an approval or more regulatory guidance from the US.

The noticeable drop in volatility (Deribit’s DVOL) from 49 to 34, now settling at 35.63, further supports this theory of a more watchful investor mindset. With this cautious approach to the markets, it seems that market players are looking for more definitive signals or developments before committing to directional trades.

However, one interesting trend that has surfaced in this muted vol regime is the steady acquisition of long-dated Vega by institutional players. As IV has dropped to record lows, these market players seem to be jumping on the chance to secure longer-term positions at reduced premium costs. This could indicate their anticipation of significant market shifts ahead or simply a strategic move to hedge their portfolios against unforeseen market swings.

Moving into August, and into the end of the year, the focus is likely to remain on how these recent legal and institutional advancements will affect the broader crypto market. Economic factors, regulatory environments, and the pace of crypto adoption will also continue to influence market dynamics.

Gamma

Our readers might recognize the Gamma Exposure by Strike chart from previous newsletters. For first-time readers, I encourage a review of our past issues for a detailed understanding of this chart's workings and interpretation.

Block orders suggest larger players have been favoring outright long-dated long calls and call spreads. Looking at the gamma exposure charts above, we can see the significant impact of this long-dated buying. This has led to the formation of clear "walls" at specific price points, representing the concentrations of these orders.

As we approach these levels, market dynamics could change significantly due to the large volume of options coming into play. The presence of these gamma walls indicates that traders are currently positioning for potential upward price movements in the long term.

Areas of Interest:

• BTC: $30k

• ETH: $1900

Volatility

Even with all of the events and announcements we have seen that volatility has drifted lower.

Vol has been “bottomless”, when does it stop Marty?

The rapid rate of decline in volatility, rather than the current low value itself, is particularly interesting. This might well be due to a confluence of factors. Lets get into it.

On one hand, we're witnessing a shortfall of speculative capital, especially from institutional players. Entities like 3AC, Jump, Genesis Lending and Alameda, who once held a significant risk appetite, are no longer in the picture, leaving behind more conservative institutions that prefer strategies like basis trading and spread capture. Currently, there is a steep contango looking at dated futures. On the retail side, the lack of stimulus checks and the hype with 'get rich quick' narratives have led to a cautious approach, further tightening the cryptospheres volatility.

From a technological perspective, there's also an absence of catalysts. We already had the largest ETH update in years, and even though the underlying tech stack is constantly improving and impressive developments are happening, we're still waiting for that groundbreaking innovation that'll grab the public's attention and potentially trigger the next wave of volatility. Worth mentioning that with a new hack or rug every other day is not appealing to individuals. If someone is working on overall crypto security, please contact Marty, we are always interested in learning more about this side of the space.

To wrap it up, we have had all of the positive news one could ask for a return of volatility in the crypto space, from XRP/SEC lawsuit to Blackrock entering the space. These were not on Marty’s 2023 Bingo card, and yet vol and price have drifted lower. In previous write ups, we have mentioned that only time or a black swan event can bring volatility back, and that a black swan is not what we would prefer.

Looking ahead, the most likely scenario is that investors begin to anticipate positive ETF news and the Bitcoin Halving event. Historically, the Bitcoin Halving, which results in a supply crunch, has marked the beginning of a new 4 year Bitcoin cycle. We are already starting to see this with those long dated Vega plays people have been buying, and we expect that to continue as long as volatility is low/muted.

Let’s Recap:

• Larger Players are focusing on long term Vega buys (a bet on the return on future volatility)

• We are still in a low muted vol regime

• No new catalysts on the horizon

Areas of Interest:

• BTC: $30k

• ETH: 1900

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