Welcome back! Here are the top things we’ll be paying attention to this week:
- Revised Q3 QoQ GDP on Thursday
- Core PCE YoY on Friday
- Crypto Options Weekly Expiry
Macro
The Federal Reserve held its key interest rate steady for the third consecutive time and indicated the possibility of multiple rate cuts in 2024. The Federal Open Market Committee (FOMC) voted unanimously to maintain the benchmark overnight borrowing rate in a targeted range between 5.25% and 5.5%. However, they signaled at least three rate cuts in 2024, assuming quarter percentage point increments, with the possibility of four cuts in 2025 and three more in 2026.
The Fed’s decision was influenced by factors such as easing inflation and a stable economy, leading to a positive market response with the Dow Jones Industrial Average reaching a record high. The central bank’s updated long-term projections also reflect a median fed funds rate of 4.6% in 2024, down from the previous 5.1% projection. The Fed’s shift in outlook is a response to the evolving economic conditions, with a focus on striking the right balance between policy that slows spending and hiring without causing a sharp economic downturn.
Crypto Market Overview
Implied and Realized Volatility
- Both Bitcoin and Ethereum saw a spike in realized volatility, reaching the 50s due to a 6% sell-off on Monday. This resulted in around $400 million in liquidations, coinciding with Senator Warren’s anti-crypto bill introduction.
- While implied volatility increased moderately, Bitcoin’s downward drift throughout the week was noticeable. Ethereum, however, showed higher realized volatility, whilst continuing to show relative weakness.
Term Structure and Skew
- Bitcoin term structure is back in contango, though early January implied vol is trading about 10 vols lower than the December expires and the late January expiries creating a dip in the curve. Traders in options markets are adjusting their positions to reflect their views on when they think the ETF approval might be.
- ETH term structure is also in contango but beginning to price in a higher implied volatility than BTC. A few months back we mentioned the possibility of traders beginning to reposition themselves in ETH options vs Bitcoin, if ETH realized volatility continued to outperform BTC as we got closer to halving. This is beginning to play out with ETH implied vol now trading richer than BTC in the later 2024 expiries.
Option Flows and Gamma Positioning
- Bitcoin options volume surged by 68%,with profit-taking in calls and traders positioning in put protection strategies post the Monday sell-off.
- Profit-taking occurred in Bitcoin calls, but most activity was centered around traders selling higher strikes, and buying put protection, especially around 40k and 41k strikes
- Ethereum experienced increased buying of front-end options, with continued interest in higher strikes, reinforcing the bullish sentiment already seen in the market.
- Bitcoin’s gamma positioning continues a trend of decreasing gamma exposure, reaching the lowest observed levels in the past month after a temporary spike and subsequent slight increase.
- Specific strikes like 40K and 402K hold significance for the 15th and 29th expirations, reflecting a mix of short and substantial long positions, creating a relatively balanced positioning with a slight long bias.
- Gamma positioning, while informative, can be overridden by external market forces if significant catalysts emerge, something to take note of as we enter the new year.
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.
