Q2 Crypto Derivatives Review

skew.
skew.
Jul 2, 2019 · 6 min read

Q2 was a great quarter for cryptocurrency markets and derivatives in particular: this is our take on the main developments.

1/. General Performance

  • Bitcoin up ~200% YtD and back > $10,000
  • Ether has been lagging as IEOs are the new ICOs , supporting BNB
  • Stellar is worst performing, started to underperform before the Facebook news
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Sources: Coinmarketcap, Messari

2/. Macro theme #1: Easing

  • The Fed and the ECB pivoted by turning dovish again in June
  • 40% of sovereign debt globally is now negative yielding, ~25% of the total bond market
  • Gold and Bitcoin surged in tandem
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Source: Bloomberg

3/. Macro theme #2: Facebook

  • Not another altcoin project : it’s an endorsement of the technology sending a clear signal cryptos are here to stay
  • No big bank are involved in the project, not even a neo bank! Only a few crypto companies are participating
  • After many high profile IPOs this year, the valley and its VCs are starting another crusade
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Source: Facebook

4/. Projections: Mining & Gravity

  • Bitcoin hash rate is at all time high
  • Starting to see projections for a $100k+ bitcoin price
  • A $100k dollar price would mean $5bln+ of monthly supply coming from mining and $2.5bln+ next year for halving

That’s a lot of bitcoins to sell!

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Source: Bitinfocharts

5/. Projections: Futures

  • Futures markets are nicely upward slopping across exchanges
  • December contracts are trading at ~4.5% premium to spot
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Source: skew.com

6/. Projections: Options

  • The bitcoin options market indicates a probability of bitcoin > $20k by December of 13%
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Source: skew.com

7/. Market Participants: Retail vs Institutions

  • Is the herd finally here?
  • This Q2 rally doesn’t look like the one of 2017, it feels more quiet
  • Google trends for “bitcoin” globally are at 25% of what they were at the peak in 2017
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Source: Google

8/. Market Participants: Retail

  • Similar observation with number of tweets related to bitcoin
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Source: Bitinfocharts

9/. Market Participants : Institutions

  • CME had two consecutive record volume days leading to the June expiry → $1.5bln traded on each day
  • Open interest doubled in June to ~$400mln
  • ICE led Bakkt is starting testing in July
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10/. BitMEX leads the futures market

  • One of the few companies that seems to thrive with both retail and institutions
  • $1tn of derivatives contracts traded over the last year
  • A new daily volume record for the perpetual swap of ~$15bln in June
  • Open interest touched $1bln
Source: skew.com
  • Bitmex has ample liquidity: average bid / offer spread for $1,000 BTC was 39bps this quarter and is heavily used to recycle OTC flows
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Source: skew.com

11/. BitMEX: Implications

  • Hard to ignore BitMEX for the SEC when evaluating if the market is ready for an ETF
  • A fat finger on Bitstamp in May caused the entire bitcoin market to sell off as Bitstamp accounted for 50% of the bitcoin price index which is used to settle the BitMEX contracts and trigger liquidations
  • Due to its market share, some metrics related to the exchange seems to have predictive power: funding as a counter positioning indicator or number of connected users on the platform
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Source: skew.com
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Source: skew.com
  • Will BitMEX be able to maintain its supremacy in the futures market?
  • It certainly looks that way at the moment but we should remember the crypto industry has a history of rapid twists and turns!

12/. Volatility Market

  • The options market is dominated by Amsterdam based Deribit
  • Open interest has been structurally growing- up nearly 10x this year
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Source: skew.com
  • Same picture for options volumes, making new highs every month
  • Bitcoin options liquidity is still a fraction of underlying volumes and closer to the one of a mid cap stock
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Source: skew.com
  • Interesting to note the options market is focused on the short term part of the curve: maturity < than two weeks
  • A sign institutions have not yet entered this market
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Source: skew.com
  • Bitcoin was much more volatile this quarter, moving on average daily 4.4% vs 2.3% in Q1
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Source: skew.com
  • Implied volatility has been going up this quarter, currently sitting at the psychological 100% level
  • Implies a 5% daily move over the next three months
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Source: skew.com

13/. Stable coins

  • USDT market cap doubled this year
  • Bitfinex issued its own token LEO, bringing confidence back in Tether
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Source: skew.com

The “regulated” alternatives have had a hard time catching up

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Source: skew.com

As a result the market share of the contenders to Tether has been plunging this year

  • The story might be a little different with Libra next year!
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Source: skew.com

14/. Decentralized Finance

  • The amount of collateral held in Maker Dao rose from $200mln to $500mln
  • Growth slowed down recently due to instability of the DAI peg and governance issues
  • Blockstream and Crypto Garage settled a derivative contract on the Bitcoin blockchain!
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Source: skew.com

15/. Seasonality

  • BitMEX has the most volumes during US open
  • Less volume during the night UTC time
  • Similar patterns to traditional markets where US open is a busy time in equities & London is a global FX hub
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Source: skew.com
  • Same patterns on Binance looking at BTCUSDT
  • Activity peaks during US hours
  • Week ends are more quiet, although they have been more active recently
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Source: skew.com
  • Coinbase BTCUSD Activity is more skewed towards US hours as expected as the pair is only available to USD accounts.
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Source: skew.com

16/. Find more real time data on our website: www.skew.com

Our team is growing quickly: we are actively hiring back-end and front-end developers

Feel free to apply if you are interested in joining us at careers@skew.com.

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