Something Stirring

Zaps are Friktion’s weekly market insights newsletter. Friktion is DeFi’s leading protocol for risk-managed yield strategies. The platform has amassed over 17,000 users and traded over $2.8 billion in volume. The protocol’s mission is to enable access to long-term sustainable DeFi yields.

Start earning at: friktion.fi
Twitter: twitter.com/friktion_labs
Discord: discord.gg/friktion

Macro

Uptober was quickly beat down as last week’s NFP (non-farm payroll) report came in hotter than expected. The market’s hopes of a quick Fed pivot were quickly dashed as risk assets plunged.

Equities and Crypto had down weeks and fixed income markets and US Dollar strength look ready to retest all time highs.

Crude oil spiked this week following OPEC’s decision to cut production by 2M barrels/day, largely offsetting the US’s efforts in reducing the price at the pump by utilizing their Strategic Petroleum Reserve.

With the 2022 midterm elections a month away, markets are preparing for a divided government.

Risk assets typically experience relief rallies after election results, especially when it results in divided governments.

All eyes are on Wednesday’s FOMC and Thursday’s CPI as main drivers of volatility this week.

Bitcoin short dated volatility took a dive last week amid dramatically low realized volatility before waking back up again amid a high volatility week.

The implied — realized spread now sits at almost 30 points, quite a juicy situation for vol sellers.

Skew woke up also after S&P retraced its earlier gain and retested yearly lows. As bond holders have been slaughtered mercilessly this year, equities are faring quite well. Could it be the next piece to fall? Rumors circulate about retail holding the equities bag on the way down potentially ready to capitulate on a further down move.

Bitcoin volatility has been quite stable despite the equities selloff, with realized volatility lower than Dow Jones 30!

Perhaps this is a good signal of exhaustion amongst S&P/Bitcoin correlation sellers.

S&P/BTC relationship has been quite rangebound, especially in the past 2 weeks as market participants wonder if things will stay that way. BTC skew not blowing out relative to S&P skew is a good indication that the increased BTC downside relative is not too much of a worry for the market.

Volt Performance

Friktion earned $66,851 last week for its depositors.

Interested in contributing to the Friktion quantitative research and strategy effort? Join one of our Taskforces and let’s build the future of finance together.

Website: friktion.fi
Twitter: @friktion_labs
Discord: discord.gg/friktion
Medium: friktionlabs.medium.com
Documentation: docs.friktion.fi