Markets tumble as China intensifies crackdown on crypto trading
Following the ban in May which prohibited financial institutions and payment companies from providing services to crypto-related transactions, the Chinese central bank and regulators announced on Friday evening that they will explicitly ban all crypto-related activities. The latest announcement would bar overseas exchanges from offering crypto trading to China-based clients. Bitcoin tumbled almost 10% from day highs while exchange tokens of China-originated exchanges such as Huobi and OKEX also got battered. Will this be reminiscent of the brief (but sharp) selloff seen in May followed by a subsequent swift rebound? Or will this be more protracted as the market faces global regulatory headwinds. Of note, leading crypto exchange FTX has announced that it is moving its headquarters from Hong Kong to The Bahamas, largely due to more crypto-friendly regulation.
TDX has been warning clients to be wary of the downside risks following the scale of the rally since the July lows. Whilst uncertain of what might be the trigger, the desk had been implementing downside hedges to protect the book. However, the industry has proven its resilience time and again and this time around should be no exception, albeit we may expect to see more short-term choppiness in price action.
Meanwhile, some positive news from the other side of the world with Twitter beginning to roll out a tipping feature, allowing content creators to be tipped in Bitcoin via the Lightning Network. Twitter is also looking to integrate NFTs into their platform.
The DVOL for BTC touched the 80-point mark briefly this week before rebounding on news of the China crackdown. The increase in implied vol across the curve has, however, been somewhat muted.
With markets recovering most of the losses from Friday night, we are looking at adding to downside protection in the form of low-cost put ratios. For example, we are looking at the 29-Oct $40k/$35k 1x2 put ratio at a cost of approx. $500 for protection and maximum profit if BTC settles at $35k at the October expiry. The strategy will only start to lose money if prices drop below $30k.
New Product Preview
TDX is pleased to offer a preview of an exciting new product named Token Accumulation Strategy (TAS) which will be launched in October. This product will allow clients to accumulate a fix amount of BTC each day at a discount to the initial spot price for up to 90 days, or until a knock-out level is reached. Our clients have already expressed a keen interest in this structure and we will be officially launching the product in October. Contact the team to learn about this exciting new product.