Q1 Crypto Derivatives Review
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!
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!