OTC Desk Market Update: Decoding Crypto Volatility — Unveiling Key Trends in Bitcoin and Ethereum
Market Update
Welcome back! Here are the top things we’ll be paying attention to this week:
- JOLTS Job Data on Tuesday
- Bank of Canada Rate Decision on Wednesday
- Non-farm Payrolls on Friday
Macro
Core PCE, the Federal Reserve’s preferred inflation metric, came in lower than anticipated, further supporting the soft-landing thesis among market participants. Consequently, markets are currently pricing in a 98 percent probability that rates remain unchanged at the upcoming December 13th Fed meeting.
Additionally, markets are also pricing in a 55 percent probability of a rate cut during the March 20th FOMC meeting. This week’s focus lies on labor-related indicators, namely JOLTs job openings and non-farm payrolls. These releases offer insights into the resilience of the American household sector.
Crypto Market Overview
Implied and Realized Volatility
- Bitcoin and Ethereum witnessed a 10-point drop in realized volatility in the past week, a move that was somewhat expected due to the Thanksgiving holiday the week before. This led to a gradual return of spot prices to mid-range levels.
- This decline in realized volatility alongside implied volatility, especially in near-term expiries, was influenced by short-term option sellers seeking theta gains during the Thanksgiving quiet period.
- With crypto exhibiting a positive spot vol correlation this year a drop in realized volatility typically leads to quieter price action and consolidation.
- After PCE came in cooler than expected, realized vol and implied began to rise again as traders began repositioning in long calls.
Term Structure
- BTC Term structure shifted lower, particularly at the front-end. January term-structure remains elevated indicating market expectations surrounding ETF approval. However, volatility continued decreasing across the curve from a month ago, especially in shorter expiries.
- ETH exhibited a similar pattern, with a relatively lesser decline in volatility compared to BTC. Both assets’ back-end volatilities are currently resting near 60.
Option Flows and Gamma Positioning
- BTC options volumes trended lower, with notable trades focusing on downside protection and selective upside exposure. Conversely, ETH options showcased more bullish flows, emphasized by outright call buying and call spreads.
- Gamma positioning normalized in Ethereum, balancing out the market, leaving it more neutral.
- Bitcoin’s dealer gamma remained slightly negative, indicating potential imbalances that could lead to dealers hedging their exposure in the same direction as price.
- Bitcoins persistent call skew shows demand for calls in BTC is healthy as we enter the new year, leaving dealers short call options in various size above the 40K strike.
As always, our team is here to assist you and provide services tailored to your specific needs. If you would like to discuss these topics further, we invite you to book a meeting with our team. To schedule a meeting, please visit NDAX OTC | Bitcoin and Crypto OTC Trading Desk or contact your OTC representative directly. We look forward to assisting you on your investment journey.
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Disclaimer:
This newsletter is for informational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities or other financial instruments. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is not a guarantee nor a reliable indicator of future results. Please consult your financial advisor before making any investment decisions.
