Desk Commentary: Tailspin

Crypto majors’ failure to hold weekend gains above 28000 and 1900 induced a fresh bout of volatility sales on either side of month end. Prior to midweek, RFQs in 9 June atm BTC straddles saw eager interest to sell as much as 1000 units per leg of the new month’s second weekly expiry, as bids were given hastily and straddle premiums quickly deflated by nearly 100 basis points from initial offers.

The sloppy sell off in spot witnessed Wednesday induced a fleeting support for downside gamma, driving skews further for puts, while shorter dated ATMs caved in below the 40% threshold.

Meanwhile, and most significant in terms of the week’s flows, were fresh rounds of ETH call calendars fired off in haste. The market’s now-infamous price indiscriminate overwriter laid waste to the back end of the ETH term structure, closing out Sep shorts to sell same strike risk in Dec, as ~$50,000 per leg of Vega eviscerated already enfeebled demand for back-end vol, which is finishing the trading week at the 45% threshold.

Although Dec 50-delta strikes in BTC are also, almost conveniently, priced at the 45% level, flows in longer dated BTC have been comparatively sporadic, in something of an inversion of past practices whereby option flows in the king cryptocurrency have invariably outstripped those of ETH. Perhaps that is partly owing to miners’ more chastened approach to balance sheet management and the recognition that “a bird in the hand” of a delta one spot sale may be worth many times the premium of “in-the-bush” overwrites.

And indeed, the overall ethos of majors’ market dynamics has materially flipped from past practices: Bitcoin is now a chain where NFT activity is closely watched and transaction fees and scalability suddenly matter. Meanwhile, Ethereum, particularly since the merge and Shapella upgrade, has been less about innovation in the eyes of market watchers and much more about volatility and option dynamics amongst large players.

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