TA Tuesday: Macro Volatility Echoes in Crypto and Equity Performance

Week-over-week performance:

  • BTCUSD: 29,232, +1.08%
  • ETHUSD: 1,833, +0.23%
  • US02Y: 4.74%, -12bps
  • DXY: 102.24, -0.17%
  • GOLD (USD/OZ): 1,933, -1.93%
  • NDX: 15,408, -1.84%
  • VIX: 15.77, +12%

On the macro side:

Last week, the US NFP report yielded a mixed outcome, causing treasury bond yields to decrease (and some panicking, too).

In July, the payroll figures were reported at +187k, slightly below the expected +200k, and there were downward revisions for previous months. Despite this, the unemployment rate improved to 3.5% from 3.6%, and hourly wages demonstrated a gain of +4.4%, despite a decrease in hours worked.

Looking ahead, we anticipate the upcoming US CPI release on Thursday and US PPI on Friday to provide further clarity on the contrasting results seen in the recent macro data.

Looking at US equities, the VIX index rose during the week as the stock market experienced a decline. However, considering the prevailing volatility trends and historical patterns observed in August, I would expect VIX to trend lower again.

On the crypto side:

The cryptocurrency landscape is mixed.

While BTC and ETH remained nearly unchanged, displaying minimal volatility and trading volumes at historical lows (summer break?), other significant shifts were observed:

i) USDT is trading at 14 basis points below par.
ii) Speculation circulated around Huobi, involving Justin Sun and reserves.
iii) Challenges persisted in CRV pools.
iv) PayPal’s announcement of its stablecoin, PYUSD, in partnership with Paxos (is this good? Happy to discuss this.)

Taking these factors into account, the overall sentiment leaned towards a mixed, neutral-to-bearish stance.
Perhaps influenced by the month of August, individuals within the community appeared to be relatively at ease.

Turning to the derivatives sector, while Implied Volatilities are at historical lows (BTC 7-day: 28%, ETH 7-day: 25%), the cost of optionality remained relatively high, indicated by BTC 7-day Realized Volatility at 13% and ETH 7-day Realized Volatility at 14%.

Additionally, puts continued to be cheaper than calls. This trend likely stems from two factors: frstly, amidst BTC testing new lows, writing puts offers an easy approach to accumulate BTC and ETH heading into the third and fourth quarters. Secondly, due to elevated USD borrowing costs (6-month yield of US Treasury notes at 5.53%), buying calls (alongside futures) is an efficient method to gain upside exposure.

Two plausible scenarios then emerge:

  1. The “Pain Trade”: Opting for increased volatility purchases towards year-end, given the potential mispricing of vega.
  2. The “Easy Trade”: Capitalising on short-term volatility sales until the conclusion of summer, capitalising on the current advantageous downward-sloping term structure and the prevalent rich volatility premiums.

Regarding the spot market, analyzing BTCUSD 1w, as the support at $28.7k (my “bull trap”) was touched, the prevailing outlook suggests that in the absence of an ETF-triggered catalyst or substantial cryptocurrency-related drama, these price levels could persist for an extended period.

A breach of the $28k threshold may prompt a retest of the upper $26k range, while $31k serves as a key upside level.

Chart: TradingView

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