OTC Desk Market Update: Decoding the Silence — A Deep Dive into Short-Term Volatility

Welcome back to our weekly market update! Here are the top things we’ll be paying attention to this week:

• U.S. Core Consumer Price Index (CPI) Inflation Data on Tuesday.
• U.S. Initial Jobless Claims Report on Thursday.
• U.S. Producer Price Index (PPI) Inflation Data on Friday.

Macro

U.S. Federal Reserve Chairman Jerome Powell reaffirmed on a 60 Minutes interview that it is premature for the Fed to consider rate cuts in March. Additionally, global composite Purchasing Managers Index (PMI) data reveals encouraging signs of green shoots across various economies, with notable accelerations in Australia, Japan, India, Spain, Italy, the Eurozone, the UK, and Brazil. However, some countries, including China, Russia, France, and Germany, experienced declines.

U.S. Treasury Secretary Janet Yellen’s testimony to the House Financial Services Committee underscored the Treasury’s commitment to managing challenges in the commercial real estate sector. This assurance, coupled with efforts to ensure adequate loan loss reserves, is a positive for U.S. liquidity and asset prices. The positive fiscal impulse contributes to the potential upside in growth and inflation, favoring a soft landing scenario in the near term.

Crypto Market Overview

Implied and Realized Volatility

Short-term volatility in crypto experienced a significant decline, primarily driven by the prevailing sideways movement in major assets, particularly Bitcoin (BTC) and Ethereum (ETH). Realized volatility (RV) observed a steady decline, settling in the low 30s for both assets on Thursday and rising a few points into Friday as short dated call buying powered the rally into options expiration. Implied volatility (IV) remains stable after a midweek dip, with the Bitcoin halving and a possible Ethereum ETF approval as the only near term catalysts, the overall market sentiment is neutral.

Term Structure and Skew

Bitcoin’s term structure has fallen into deeper contango, experiencing a drop of seven points in the front of the curve, with longer-dated options showing a more modest decline. Ethereum is trading at a two-vol premium to Bitcoin in the longer term, and also seeing implied vols decreasing as the market finds its range, leading to increased gamma selling activity.

Put skew, influenced by spot price movements, coming back in the short-dated expiries reflects the hedging appetite and concern traders have after crypto majors outperformed to close the week. However, call skew remains prevalent in longer-dated expiries, indicating expectations of upward movements as we get closer to the Bitcoin halving event.

Options Flows and Positioning

Call volumes dominated option flows, with notable trades in Bitcoin, involving buying February strangles and selling April strangles. In Ethereum, February $2,500 USD call buying was observed, which based on the prevalence of option selling in ETH lately was likely a short cover. The market also witnessed the unwinding of certain volatility selling trades, due to changes in the volatility curve.

Other noteworthy trades include put buying in June at the $30,000 USD strike and a large buyer of March $50,000 USD strike calls in Bitcoin. Ethereum saw a surge in volume, mainly driven by the buyer of February $2,500 USD strike calls and various March call spreads.

Gamma positioning in Ethereum remains elevated, concentrating around the $2,400-$2,500 USD strike level, mostly due to gamma sellers taking advantage of the sideways price action since the Bitcoin ETF announcement . However, Friday’s price surge in Ethereum was enough to force some of those positions to be closed, reinforcing the upward momentum. This kind of positioning is something to take note of as we get closer to a potential ETH ETF announcement.

As always, our team is here to assist you and provide services tailored to your specific needs. If you would like to discuss these topics further, we invite you to book a meeting with our team.

To schedule a meeting, please visit NDAX OTC | Bitcoin and Crypto OTC Trading Desk or contact your OTC representative directly. We look forward to assisting you on your investment journey.

Don’t forget to follow us on social media for more updates and join the conversation on our forums.

Check us out on X, Instagram, Facebook and YouTube.

Disclaimer:

This newsletter is for informational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities or other financial instruments. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is not a guarantee nor a reliable indicator of future results. Please consult your financial advisor before making any investment decisions.