Table of Contents
1. Prices Nuke and Doom Post
2. Options Markets
3. What happened to UST
4. Three Interesting Stories
3 min read
As I sit down to write here in what Dante described as the 7th circle (Arizona) the irony dawns on me. It’s going to be 100 degrees here in a few days and everything is burning.
NUKE
In any other market, at any other time in history, this last week would have been a two sigma event, it would have been cataclysmic, like March 2020. But in Crypto, it was just another week, a normal Monday where BTC casually dropped ~13% and ETH declined ~11%. Don’t get us wrong, the calls for, “everything to zero” resounded violently through the halls of Crypto Twitter. But anyone who has been around a while has seen this before, we’ve watched the weak-handed come to buy the top and leave at the bottom.
Here are two heuristics to help you win in markets.
Don’t risk what you have and need for what you don’t have and don’t need.
Time in the market > Timing the market.
As to why this happened, who knows, but I tend to think that larger Macro influences had something to do with it. Bitcoin and ETH continue their correlation to NQ (recovering from ~5% drop) as the Fed pushes forward with its hawkish rhetoric. It would seem they are determined to break inflations back. How long this can last is anyone’s guess, but as we said in last week’s newsletter it probably can’t go on much longer than mid-2023. We will explain this in a more in-depth piece.
NQ
BTC
ETH
DOOM POST
Note: Supply lines are in shambles. Something to watch.
OPTIONS
The Option markets have been wild over this last week as traders scrambled to get their gamma in line. Multiple analysts mentioned Market Makers having negative Gamma meaning they would need to sell into dips and buy into rallies (again something for another time). The point here is that this behavior exacerbates moves one way or the other. (Increases volatility)
At the moment the curve is completely inverted. (Backwardation)
You can see in the second chart where vols peaked in the high 80’s earlier this week only to fall off a bit.
But historically this is a tiny blip in terms of crypto vol. We could potentially run much further.
Paradigm flow is always good to watch because you have mostly institutional or large players using their services.
April Trading Activity
In April, the total notional traded through Paradigm was a whopping $8 Billion.
There were three major themes today. (5.9.22)
1. BTC hedging as tech capitulation continues and markets brace for US CPIs on Wednesday.
525x 29Jul 15k put bought.
475x 27May 20k put bought.
200x 20May 30k/33k/36k put spread collar bought.
2. BTC/ETH short vol covering in 27May. These are call legs of short strangles traded last week on vol crush:
150x 27May 40k call bought.
175x 27May 43k call bought.
3k 27May 3200 call bought.
3. In ETH, the theme of large year-end upside continues during market selloffs.
7k Dec 4k calls bought.
WHAT HAPPENED TO UST
TLDR; Large actors pulled UST from where they were staking (Anchor) and dumped it on the market thereby putting pressure on the peg. This can all be quite convoluted and confusing so here is a great thread explaining in depth how it all works and what went down. It’s important to know Luna and UST are massive, if they go down it will send shockwaves through the crypto world.
THREE THINGS
🤖 Doomberg put out a great piece on how renewable diesel is leading to famine.
🤖 Zeeprime wrote a great piece on On-chain Options.
🤖 Early Wyre Backer Launches $200M Fund for ‘Mid-Growth’ Crypto.