Desk Commentary: Lift Tickets

In this week’s Desk Commentary, Genesis is commenting on the recent rally.

• After a successive serially auto correlated run up in spot that saw crypto majors rally over 20% in just a few days, boosting front end implied volatility and inverting term structure as would be expected in a range breakout, the third week of the year has seen a partial reversal of those phenomena.

• BTC spot has clung tightly to 21000 while 1600 has definitively capped ETH for the last several trading days, suggesting gamma saturation. Yet even as spot stagnated, Vega buckets have materially outperformed. From lows near 53% and 56% respectively, March and June BTC IVs gapped 6-10 points over the long weekend before settling in, with OTM call skews pushing multimonth highs. Similarly, the steep term structure inversion rapidly normalized with Jan falling from a 10+ point premium vs March to a nearly 5 vol discount as of this morning before clawing back to flat as spot swooned lower with the DOJ’s Bitzlato enforcement action.

• The Tuesday session had seen significant demand for short dated BTC (and to a lesser extent, ETH) upside, before gamma came crashing lower into the Wednesday New York morning with 20 and 27Jan BTC given down into the mid 50s and Feb dates falling below the 60% threshold. Those have since firmed up with the 6% range put in since noon EST, while still far below the IV-spurt from the initial press through 21500. Gamma at current pricing thus evinces a fundamentally realizable consideration, yet absent another surge to new cyclical highs in spot or a break back through congestion at 19000-20000 and 1400-1500, gamma may tend to remain under pressure. Particularly with skews having firmed up materially in favor of calls, there may be fresh supply of topside looming from traders who’ve not seen 60 or indeed 70 handle vols on shorter dated options in what feels like months unless historical volatility can sustain its own recovery.

Thanks to Gordon Grant, Co-Head of Trading, Genesis