Q1 Crypto Derivatives Review

We love numbers at skew so let’s wrap up Q1 with a review of the main trends in crypto derivs (initially published on Twitter on the 27th of March).

1 - Overall, reasonably good quarter with bitcoin +8% and ether +3%.

Top performer was BNB +180% as Binance keeps expanding its offering at a rapid pace. Also LTC +100%.

2 - Bitcoin traded in a narrow 900$ range between $3,300 and $4,200. Currently trading just above $4,000.

Very quiet by bitcoin standards — any paper starting by stating bitcoin is incredibly volatile is currently wrong!

3 - Perpetual swap volumes have been on a downtrend compared to last year with average daily volumes on Bitmex and Bitflyer in the $1bn region.

The busiest period was on the second half of February when bitcoin attempted to break out: 2 sessions > $3bln for each exchange.

4 - Open interest on Bitmex gradually rebuilt, +60% to $550mln or 138k bitcoins.

Not unusual to see positions accumulating in periods of calm.

5 - Less volatility means less liquidations with $1.83bln being liquidated in total — 62% were sell orders (in red below).

Only a few $10mln liquidations this quarter!

6 - The market overall remains skeptical of the recent grind higher with a stubbornly downward slopping futures curve.

7 - On the liquidity side, trading volumes seem to be concentrated around the US open — 9 a.m to 11 a.m NY time during the week (below time of the day is in UTC).

Anyone for disrupting the US and NY as the epicenter of global financial markets?

8 - The average bid offer spread to trade 1,000 bitcoins at market was 20bps on Bitmex, 70bps on Bitflyer vs 3.5% on Coinbase.

A physical bitcoin is not the same as a perpetual swap so some will say the comparison is unfair!

9 - In options, very interesting growth led by @DeribitExchange and an active community promoting and trading the product — including @skew_markets, @QCPCapital or @AkunaCapital among others!

Total open interest before Mar19 expiry is 2x the OI before the Dec18 expiry: $300mln

10 - Trading volumes have doubled to nearly $10mln a day — average over the quarter was $8.36mln with a noticeable acceleration since mid-February.

11 - Bitcoin moved on average 2.15% over the last month.

Bitcoin volatility has been in a structural downtrend since the highs of 2017. The emergence of derivatives likely contributed.

12 — Expectations of volatility have been falling all Q1 — currently pricing in a daily move of 2.68%.

Still a fraction above the lows reached in October last year.

13 - As a result the probability distribution of bitcoin is getting increasingly “vertical”.

Market is now pricing in a probability of BTC > $10,000 by Sep19 at only 4.2%.

14 - Correlations between coins remain extremely elevated.

Realized correlation of returns between ether and bitcoin has been on average 91% this quarter with little variance.

Good for market makers, bad for investors!

15 - The ether derivatives market is starting to grow with bitmex seeing more and more volumes on its perpetual swap — most days > $200mln

16 - Deribit also started listing options contracts on ether recently.

Ether has a higher implied volatility than bitcoin making its probability distribution less “vertical”.

Market sees probability of ether > $200 by Sep19 at nearly 40%. What do you think?

17 - On a side note, the race to replace USDT as the main $ backed stable coin slowed down considerably this quarter and is in stand by for now.

18 - Finally, DeFi saw plenty of terrific developments.

@MakerDAO could be on its way to change margin trading. It is already well passed the experiment level with nearly $300mln worth of ether locked in CDPs against $87mln DAI issued.

Thanks for reading us. Please let us know if any suggestions or feedbacks!