Sell in May and go away?
Published in
3 min readMay 2, 2023
The markets, in particular, the crypto market has had a stellar run since the start of the year. However, a plethora of headwinds ahead leads us to trade cautiously as we head into the month of May
- We now have bank failure number 5 as we start the 5th month of the year — Silvergate, Silicon Valley Bank, Signature Bank, Credit Suisse, and now First Republic Bank)
- A week after disclosing more than $100 billion in customer outflows in Q1, First Republic was seized by regulators and put into FDIC receivership
- It was then announced that “most” of the assets will be sold to JP Morgan, in what looks like a sweet deal for JPM (a thread on the JPM/FRC deal)
- MicroStrategy, holder of 140,000 BTC, also reported seemingly solid headline Q1 earnings, however, one paragraph in their SEC filings raised some eyebrows
- In short, MicroStrategy expects that cash from business operations will not be sufficient to meet obligations on long-term debt, and a sale of Bitcoin holdings could be considered in order to meet these obligations
- Whilst this may not be an imminent concern, it may weigh on market sentiment and is certainly worth keeping an eye on
- Chatter on DCG’s $575 million loan from Genesis is again resurfacing as it is due to be repaid in May
- It would seem unlikely that DCG would be able to meet this repayment without selling assets, including a potential sale of GBTC (a thread on DCG situation)
- Meanwhile, Treasury Secretary Janet Yellen warns that the U.S. could hit the debt ceiling by June 1, earlier than had been expected (Yellen warns debt ceiling could be hit much sooner than expected)
- We also have the upcoming FOMC rate decision (Thursday 2am Hong Kong time) with another 25-bp interest rate hike fully priced in, while the focus will be on the wording of the FOMC statement and Powell’s press conference
- Technically, both BTC & ETH charts are looking precarious, having corrected from 2023 highs and broken key support levels
- We are looking at $28.5k as the support-turned-resistance level on BTC and sustained trading below this level leads to a high likelihood of a test of $27,350, followed by $26.2k
- ETH has also failed to hold the key $1,888 support and we are now targeting $1,733 on the downside
- Clients who have been waiting patiently on the sidelines are looking at these support levels closely as potential entry points to start building BTC & ETH exposure
- We have seen good interest from long holders to sell covered calls on BTC & ETH into market strength, with clients looking at $30k+ and $2k+ strikes respectively, and we expect to see continued selling interest on rebounds
- There has also been interest in looking at ETH downside protection given the low implied volatility levels — both in absolute terms and versus BTC
- We like accumulating ETH July OTM gamma on expectation of elevated market volatility in the coming weeks
- We also like short-dated put spreads and put ratios as low-cost hedges against further moves to the downside
- Please don’t hesitate to contact the desk for pricing and other ideas
