Bitcoin tries to recover after yet another choppy week; El Salvador become the first sovereign nation to adopt Bitcoin as a form of legal tender
The week began on a shaky footing with short interest on Bitfinex rising on Monday to levels seen prior to large recent selloffs.
Bitcoin (BTC) subsequently proceeded to trade as low as $31k on Tuesday night on news that the IRS is seeking Congress authority to collect information on crypto transfers of greater than US$10k.
However, market finally started showing signs of recovery amidst a stream of positive news: 1) MicroStrategy announced that it was upsizing its bond issuance with proceeds to be used to purchase additional BTC; 2) El Salvador’s parliament passed a vote declaring BTC as a form of legal tender in the Central American nation; and 3) The Basel Committee proposing new requirements for financial institutions that wish to hold cryptos on their balance sheet suggesting an acceptance by global regulators of cryptocurrencies as a proper asset class.
Interestingly during the week, perpetual funding rates on BTC turned positive while front-month futures frequently traded in backwardation (i.e. futures traded at a discount to spot), suggesting that the market has well and truly de-leveraged.
In terms of flow, clients generally remained cautious adopting a wait-and-see approach until a direction is more clearly established
We continued interest in ETH Linked Contracts with clients looking to accumulate in the $2,100 — $2,500 range while there was also scattered interest in bullish FTT and DOT structures
Volatility & Skew
Implied Vols continued to trend lower with both BTC and ETH stuck in a trading range. A few more sessions of such price action may see that decline in implied vols accelerate. The desk has been running slight short Vega but will be looking to move towards a neutral position to err on the side of caution.
Promising signs of market consolidation with BTC on the verge of technically breaking out of its recent downtrend, however, we are not advocating aggressive longs at current levels.
Rather, we are tactically looking at short-dated, low-cost options strategies to try and capture decent risk-reward payoffs at support/resistance levels.
Clients who had been sitting on the sidelines and looking to add to their exposures following the May selloff can contact the desk on pricing on BTC, ETH and other altcoin Linked Contracts which are offering attractive yields and potential to accumulate spot at lower prices.
Happy trading and Happy long weekend! (for those of us in HK)
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