Last week was eventful, with a multitude of significant headlines in both the crypto and traditional financial sectors.
Week-over-week performance:
- BTCUSD: 26,808, +2.88%
- ETHUSD: 1,727, -1.26%
- US02Y: 4.74%, +18bps
- DXY: 102.49, -0.82%
- GOLD (USD/OZ): 1,951, -0.40%
- NDX: 15,084, +2.03%
- VIX: 13.53, -9.8%
- VVIX: 90.69, -2.5%
On the macro side:
Last week was eventful, with a multitude of significant headlines in both the crypto and traditional finance realms.
These headlines encompassed a range of topics, including positive and negative developments, as well as micro and macro factors.
Over the past few months, we have observed a notable rally in equities, with some outperforming others.
However, the crypto market has not only lagged behind but has generally underperformed.
This is a shift from bitcoin’s historical role as a high-beta asset, as it is now moving towards a more neutral territory.
Chart 1: BTC vs. NDX
The underlying reason for this trend is relatively straightforward: investors are seeking certainty.
It is not solely about interest rate hikes, pauses, cuts, or adopting a “higher for longer” stance.
Instead, it primarily revolves around the level of uncertainty surrounding future market developments.
In the traditional finance world, prospects are looking brighter, which has propelled prices to remarkable performance levels since the start of 2023.
In contrast, the crypto market is riddled with question marks.
As long as this uncertainty persists, we cannot expect sustainable growth or a realignment with US tech equities.
Furthermore, it is essential to differentiate between market uncertainty and volatility.
While they can overlap at times, volatility often stems from market participants struggling to reach a consensus on price.
However, the prevailing sentiment in the current landscape, across digital assets, is a unanimous agreement that there is a lack of clarity.
Many unanswered questions persist, such as the emergence of Crypto Spot ETFs, the distinction between commodities and securities, the regulation of exchanges, and the personification of DAOs.
Should these questions find satisfactory answers, and the crypto market gains more clarity, digital assets can join the party alongside US equities within a favourable macro environment.
On the crypto side:
The previous week witnessed cryptocurrency reacting in its characteristic manner.
While there was minimal response to the CPI number, prices did react to FOMC news, as well as developments concerning Binance.
Taking a look at the derivatives market, both BTC and ETH term structures continue to remain in contango and are trading at similar levels.
Volatility sellers keep benefitting from a rolling-down term structure. It is important to keep a few things in mind:
- Low volatility does not necessarily equate to cheap volatility.
- The vega of long-term options is just huge.
Indeed, 7-day BTC options are being traded with an implied volatility of 43%, while the 7-day realised volatility stands at 36% (7v VRP).
This indicates that the volatility is not cheap. On the other hand, the scenario is quite different for longer timeframes.
The 30-day implied volatility is traded at 41.37%, while the 30-day realised volatility is at 42.3%.
Furthermore, butterflies are priced almost identically across various timeframes, presenting an interesting trading scenario.
One can consider a strategy that involves shorting short-term volatility and going long on long-term volatility with a wings structure.
Chart 2: BTC and ETH Volatility Surface, src: laevitas.ch
Looking at the spot market from a technical perspective, the drop towards $25,000 appears to be a natural adjustment for further growth.
With a net-long bias, BTC reaching $35,000 by the end of summer seems plausible based on the charts.
However, if the pattern breaks downwards, we may see a retest of the $22,500 level.
Chart 3: BTCUSD 1d
Regarding altcoins, a trade that currently appeals to me is a long position on LINK/USD.
Despite being a promising project, LINK has been trading within a descending range since May 2022.
We are currently in an outlier zone within the May-June regression.
Therefore, I like buying LINK at $5.10, with a take profit target at $5.91 and a stop loss at $4.85.
Chart 4: LINKUSD 1d
Happy trading!
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