Desk Commentary: Weathermen

Much like this year’s late summer temperatures, digital asset markets have run hot and cold with surprising intermittency, even for seasoned veterans. Bitcoin and most top tokens had a scorching Tuesday session in the final week of August as weaker JOLTs data put a bid under macro risk proxies and, after what’s felt like years of sturm und drang, a hard-fought victory for Grayscale before the courts, which lambasted the SEC’s stance as ‘capricious’ and ‘arbitrary’ in a rare admonition of a regulator.

And while there was nothing initially capricious about the $2,000 rally in bitcoin spot prices over just a few hours that saw it knock on the door of 28,000 less than two weeks after August 17th’s lurid plunge, it has since failed to hold ground, sliding listlessly back to the $27,000 level, much in keeping with volatility markets which have felt far less prone to any sort of sustained rekindling if somewhat flighty and nigh-on whimsical.

As the news of the case’s outcome hit, market makers, particularly those of a programmatic variety, pulled liquidity as streaming options prices on exchange widened out and in some instances evaporated entirely. Screens flickered like tube televisions amidst a veritably face melting surge in activity, with Friday IVs at one point paid north of 50%, up from the low 30s just hours earlier, while the trading tape saw 1month bitcoin ATMs move from 35 bid to 40 mid to 45 offered in quick succession before beginning to waft lower with BTC stabilizing above $27,000 and ETH, which lagged by more than two percentage points, over $1,700. Back-end options printed in smaller tickets but were nonetheless illiquid and choppy with strips of strikes as far out as June being paid into the 60%s for quarter delta calls after languishing with an offered tone several vols lower just hours earlier.

Yet the teleportation in spot was not as instantaneous or extreme as some may have imagined following such a long-awaited outcome; having started the morning at $26,000, BTC took seven minutes to breach $27,000 after the news before powering decisively higher. Volatility similarly moved in fits and starts with a remarkable degree of inefficiency, as if markets were waiting for something more than the watershed ruling, ultimately fading nearly to unchanged in mid curve tenors by the close. In that vein, there’s been a distinct show-me predilection to crypto trading rhythms since BlackRock announced its ETF filing, and in some ways the outcomes post-Grayscale are similar, with IVs easing by 5 points or more in the very front end and 1-2 points for the rest of the curve.

But after two 7+% gaps in less than two weeks, bitcoin has proven that shorting volatility is not a free lunch for those managing risk dynamically, and with vol of vol clustering toward the upper end of recent ranges, the conclusion of the third quarter, much less the month, feels far from certain as the stop-loss driven squeeze swings from just above 27,000 to 27,700 and all the way back on Thursday morning has shown. Amidst the increasingly temperamental tape, it’s begun to feel as if the digital asset complex is trading with a busted thermostat.

Disclaimer

Genesis Global Trading, Inc. and its global affiliates (collectively, “Genesis”) do not provide legal, compliance, tax or accounting advice. Genesis is a principal trading firm; it is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing this material, which cannot be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The information contained herein has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances, or requirements of any person, and it should not be the basis for making any investment or transaction decision. THE INFORMATION IS NEITHER A RECOMMENDATION TO ENGAGE IN ANY TRANSACTION NOR RESEARCH MATERIAL.

This material contained herein is confidential and may not be distributed in whole or in part to anyone other than the intended recipients. Unauthorized reproduction or distribution of all or any of this material or the information contained herein is strictly prohibited. These materials are incomplete without reference to, and should be viewed solely in conjunction with, the terms and disclosures set forth on the Genesis website, which are deemed incorporated herein.

The information provided in this communication does not constitute investment advice, financial advice, trading advice, or other advice. If any person elects to enter into transactions with Genesis, whether as a result of this material or otherwise, Genesis will enter into such transactions as principal only and will act solely in its own best interests, which may be adverse to your interests. Therefore, you are advised to make your own assessment of whether a Genesis service that you are considering is suitable for you and ensure that you have the necessary experience and knowledge to understand the risks involved in relation to those particular services, transactions or investments. Prior to entering into any transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences. In this regard, by accepting this material, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice and our disclaimer as to these matters. By accepting receipt of this material, the recipient will be deemed to represent that they possess, either individually or through their advisers, sufficient investment expertise to understand the risks involved in any transactions or services discussed herein and that they have not relied in whole or in part on any of the information provided by Genesis in making such determination.

The trading of digital currency as herein described is an inherently risky activity. Digital currency does not benefit from the protections afforded by the Securities Investor Protection Corporation. A counterparty’s ability to enter into derivatives with Genesis depends on satisfying a number of regulatory requirements imposed on derivatives under the Dodd–Frank Wall Street Reform and Consumer Protection Act and applicable law.

Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as an offer to sell or a solicitation to purchase any financial instrument. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency rate or other market or economic measure. In preparing this material, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. Genesis does not make any representations or warranties, express or implied, as to the accuracy or completeness of the information provided herein. Any estimates included herein constitute our judgment as of the date hereof, are subject to change, may or may not be realized, and are not a complete analysis of every material fact. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, Genesis may have a position in any such instrument at any time.

Genesis and Genesis Trading are marketing names for certain businesses of Genesis Global Trading, Inc. and its global affiliates and if and as used herein may include as applicable employees or officers of any or all of such entities irrespective of the marketing name used. Products and services may not be available to all counterparties or in all jurisdictions. Securities and digital assets are not deposits or other obligations of any commercial bank, are not guaranteed by any commercial bank and are not insured by the Federal Deposit Insurance Corporation. GGC International Limited is incorporated in the British Virgin Islands (“BVI”). Genesis Global Trading, Inc, a Delaware corporation, has been granted a Virtual Currency License by the New York State Department of Financial Services and is registered with the U.S. Securities and Exchange Commission as a broker dealer. Genesis Asia Pacific Pte. Ltd. Is a private limited company organized under the laws of Singapore. Genesis Global Capital, LLC is a limited liability company organized under the laws of Delaware. Genesis Custody Limited is registered as a cryptoasset business with the UK Financial Conduct Authority.

© 2022 Genesis Global Trading, Inc. All rights reserved. “Genesis”, the Genesis logo, and other Genesis trademarks and service marks referenced herein are trademarks and service marks of Genesis and are used and registered throughout the world.