The discretized, fat-tailed distribution of cryptocurrency returns manifested itself once more to punctuate the second and third days of the last trading week of April with a dizzying display of lurid leaps and double-digit descents that have muddied the year’s technical picture and left participants wondering just how incurably volatile could trading get ahead of May’s FOMC.
After last week’s lumbering elephant walk $2000 lower from the $29,000 trendline break, crypto majors found themselves running into resting, if restive, impregnable bids at 27,000 BTC and 1,800 ETH in Tuesday’s session. The market turned tail anon, teleporting 10% higher on news of asset disposals and another potential rescue operation at First Republic Bank as the lingering fragilities within certain pockets of the U.S. banking system became once more front and center on the startlingly segmented trading tape.
Prior to that gap, implied volatility had, for most of the Asian mid-week session, comparatively inched along, in a mulish drag higher. Volatility’s initial resistance to rally stemmed in large part from thick, fixed price top of book offers in 1-2month ETH quarter-delta risk, which saw May strikes given below 50% and same-delta June upside hammered down to nearly the same level. This saw ETH skews cling to a preference for puts, with the 2 month 25 delta spread still marked at 2 vols to the downside, in a marked contrast to the BTC surface. The aforementioned relatively heavy-handed supply of front end vega was, however, ultimately digested, at least in part, as spot rocketed and a land grab for both Friday, 28th April and 5th May gamma commenced. By the time BTC and ETH crested 29000 and 1900 respectively (for the first trip up), IVs found firmer footing some 3-4 points higher than the dead-ball lows of the night prior as rational buyers of shorter-dated calls and call spreads emerged from the woodwork and munched their way through a still-lazy if not entirely catatonic supply of gamma, where an inchoate premium for FOMC meeting began to expand.
Yet, while ‘apathy’ has surely been one of the watchwords of the options trade to close out this month, ‘nausea’ is perhaps the latest addition to the lexicon. Not long after the Wednesday morning moonshot to 30,000, the big figure proved to possess merely fissional finality as an inundation of selling tripped short gamma stops and sent players scrambling to cover downside risk in a frenzied reversal that utterly eviscerated late-comer longs in a merciless wipe right back to 27,000. Vol traders reeled and short dated IVs spiraled towards the 70% threshold in deference to the zero-g trading cadence.
Crypto proved that it takes no prisoners and suffers no fools with one last queasy, squeezy push some 8% higher off the lows to close out the Wednesday session, with round numbers 29,000 and 1900 offering some heuristic solace to a market searching haplessly for an anti-emetic. Thusly, it is not entirely irrational to ask, after over 30% of absolute range traversed inside of 24 hours, what implied volatility is doing at these levels. The Deribit DVol index sits at a staid 54.25 for BTC and 56 for ETH, with helminthic term structures that suggest little to no preference for event-driven gamma over midcurve vega at a time when event risk and exogenous shocks of the kind seen over the past week have not been in short supply.
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.
AUTHOR(S)
Genesis is a global leader in institutional digital asset trading, lending, derivatives, custody and prime brokerage services.