Option Pit Crypto - June 6th, 2024

Option Pit Crypto – June 6th, 2024

Greg Magadini

BY GREG MAGADINI

June 6, 2024

Hey Crypto Traders!

Here is the latest Crypto update

USA Week Ahead:

Monday 9:45a & 10a: Manufacturing PMI & ISM
Wednesday 8:15a: ADP employment
Friday 8:30a: NFP employment report

Macro

The Fed’s next FOMC meeting is scheduled for June 11-12 and last week’s release of the “Beige Book” provided key insights into the Fed’s thinking.

10/12 Fed regional banks report modest growth while two reported no change.
“Price growth is expected to continue at a modest pace in the near term,” the Fed said
More labor is available and wage growth continued to slow. Pay is reverting to lower pre-pandemic norms.
Political uncertainty is hurting the economy.

USTREASURYYIELDCURVE.COM

In response longterm rates moved slightly higher week-over-week while the stock market had a volatility end-of-week.

This week we have the non-farm employment report release on Friday. Labor (along with CPI/PCE) is one of the main economic releases that the data-driven Fed relies on.

Commodities are still having “inflationary” like moves despite the move lower in precious metals week over week.

finviz.com

Inflationary dynamics, if persistent, in my mind strengthen the macro-fundamental picture for crypto currencies.

Political uncertainty, another theme from the Fed’s “Beige Book”, also sounds bullish for non-government decentralized crypto-money.

Lastly, I view the ETH SPOT ETF decision as very bullish for industry-specific crypto fundamentals.

Although, this bullish theme was tamed slightly when the Biden Administration vetoed SAB 121.

BTC: $67,599 (-1.7% / 7-day)

ETH :$3,769 (-2.1% / 7-day)

SOL :$162.28 (+0.3% / 7-day)

Reflecting on SAB 121, the core issue is the current SEC guidance.

Currently TradFi banks who’d want to start business as custodians for crypto customers (like they do Fiat) is now too cumbersome and expensive in terns of regulatory compliance.

If Spot ETFs are bullish, depositing crypto alongside fiat at regular banks, is ultra-bullish.

The market wasn’t ready for it yet.

Looking at the current market positioning, I don’t think things are anywhere frothy like they were in late March/early April.

BTC 90-day Basis

ETH 90-day Basis

We can clearly see that the futures basis is much lower than around peak positioning and the underlying OI buildup is rather stable for BTC.

BTC ∆1 Derivatives OI

What’s interesting is the ETH ∆1 futures/perp OI buildup. We naturally saw a jump in futures OI with the surprise SPOT ETF approval, enough to make new YTD OI highs, but what’s fascinating is the relative lack of CME OI for ETH compared to BTC.

ETH ∆1 Derivatives OI

The US institutional ETH exposure (proxied by CME OI) is lackluster.

This is either bullish or bearish

Bullish: Lots of room for US institutional allocation
Bearish: Lack of interest from US institutions

ATM Term Structure ETH & BTC

June Quarterly Expiration Skews ETH & BTC

From a volatility perspective ETH is currently pricing in “follow-through” in terms of skew and an overall more expensive implied volatility. Again, disappointing buyers with the lack of continuation higher in spot ETH.

Relative DVOL Ratio (ETH DVOL / BTC DVOL)

The spike higher in implied volatility was fast an pronounced, sending ETH DVOL to trade +32% over BTC DVol.

This makes me think the move is a clear “fade-trade” opportunity.

Given my slightly-bullish delta bias and short ETH relative vol bias… I would likely do something like the famous ETH Call Overwriter strategy here (we can’t forget his trade-flows have an IV impact).