Crypto vol markets had another look into the abyss as spot prices sagged to 23000 and 1600 support for bitcoin and ether to close out the month of February.
Friday 3rd March vols were given down as low as 40% and kamikaze sellers of the benchmark quarterly expiry stacked offers top of book through mids in 100s of units of btc and 1000s of units of eth per strike with 31st March bitcoin 25k calls given as low as ~47% and same-date ether 1700s flirting with the 50% threshold, levels that until 2023 would have been nigh-on unthinkable for the 1month ~25-delta point on the smile.
In Tuesday’s session, Twitter-FUD had swirled around purported liquidations of large blocks of wrapped bitcoin and other assets in public creditor workouts, and going into the Chinese PMI, for which there was little preemptive optimism, decentralized perpetual futures market positioning suggested a decidedly bearish tilt. Yet there were signs in the month-end New York afternoon that the tide might turn, with systematic vol sellers coming to purchase both short-dated and longer-term optionality with nearly $50k of vega paid into (in hindsight) overly eager offers, putting a halt to the serially autocorrelated plunge in the implied volatility time process seen of late.
Those lifts proved prescient as Chinese PMI surprised to the upside and risk caught an immediate bid, with crypto proving the adage of its high-beta correlative proxy; bitcoin and ether spot prices leapt 3-4% within a short time after the number, punching through technical resistance and sending gamma sellers scrambling to cover ill-timed shorts in local strike risk ahead of the 24,000 pin where significant open interest lies for this Friday. That leap sent front end IVs sharply higher as ATM strikes for March expiries in BTC once again crested 50% with ETH some 5-7 points higher, exhibiting one of the tightest cross-product vol spreads of recent memory. While relative value players have begun to look for a reversion to historical norms of > 10 vol points, IV spread compression between BTC and ETH has taken on more of a secular tendency of late in a sign that there may only be one macroeconomic-barometric flagbearer in the digital asset ecosystem.
On an outright basis, demand for vega continued to firm into Wednesday’s New York open ahead of ISM leading economic indicators and Friday’s non-farm payrolls, to which the increasingly data-driven cryptocurrency trading tape has resumed its pavlovian predilection of knee-jerk jumps on any signs that inflationary forces may be fading.
Notwithstanding stalwart supply of front-month ATM strikes and meaty upside throughout the 1st March session, IVs have nudged incrementally higher over the last 12 hours, with 50% annualized looking to be a more middle-of-the-range level for bitcoin around which reasonable 2 way interest can support balanced flows both in terms of vol and skew which has exhibited continued inconstancy even in the face of entrenched positive spot:vol correlations, while ether remains entirely apathetic even with the Shanghai merge a month away and skew firmly bid for puts.
Shorter tenors also found their footing with a persistently rocky trading rhythm that saw BTC probe 23750 only to flirt with 23350 by mid afternoon before another lurid scramble back to the highs as Thursday’s Asia trading session began, suggesting that there may be more of a dearth than a surfeit of gamma around current levels of spot and vol.
Thanks to Gordon Grant, Co-Head of Trading, Genesis
Genesis
Block Scholes
