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.
Thanks to Gordon Grant, Co-Head of Trading, Genesis
Genesis
Block Scholes
