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February Monthly Recap:
Ether Bounces Back

Thursday 3rd March 2020

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Bitcoin Spot

Bitcoin reclaimed $10k before selling off towards the end of the month on Coronavirus spreading globally. The halving narrative has gone relatively quiet with two months left to go and bitcoin hash rate recently climbing to a new all time high (130 EH/s).

Coronavirus weighed on global markets with Wall Street experiencing at the end of February its worst week since the Great Financial Crisis. Bitcoin also traded like a risk-asset despite some initial strength. Gold had a similar move with a heavy sell-off on the last trading day of the month as investors were hit by margin calls elsewhere. 

2. Bitcoin Futures

BitMEX XBTUSD contracts - the most liquid crypto derivatives instrument globally - topped once again around the $1bln mark. Number of open bitcoin futures positions remain near historically high levels with investors happy to reassess their stance once a more decisive up or down move occurs.

We are seeing a structural decrease in the number of XBTUSD liquidations which can be a function of low realized volatility but also the result of less leverage used overall as the market becomes more driven by professional trading firms.

CME Bitcoin futures are having a strong start to the year with a pick up in activity since the exchange launched its bitcoin options product at the start of January.

Futures traded in contango through the month with basis reaching a high point on Feb 13 when June futures briefly trading 20% annualised above spot before coming back off to ~13% annualised by month end. 

Cash and carry strategies could be one of the driving forces behind the squeeze in dollars and stable coins funding reported by many lending desks.

3. Bitcoin Options & Flows

Bitcoin term structure remains normalised despite VIX spiking to nearly 50. The bitcoin options market is not showing signs of correlation with other macro assets yet.

1 month implied volatility traded in a relatively narrow range between 55-65 for most of the month. The break through 10k didn’t precipitate the vol pop that the market seemed to be expecting.

Skew - the price of puts relative to calls - has been sitting in negative territories since the start of the year reflecting structural demand for upside ahead of the halving as well as expectations that a decisive breakout above $10k would spur volatility.  

Deribit options had a record month with 287k options traded and the launch of their daily options spurring 56% month on month growth.

Some profit taking in the March 7k-9k calls occured after large buyers from December sized down and kept pressure on implied volatilities. Back end of the month saw block trading flows prudently buying short-dated puts (9k-8.5k) as spot traded down 15% on the week. Open interest increased to nearly 3000 options in the June 32k call as persistent block buying flow has pushed implied volatility through 100.

Total bitcoin options open interest is close to $1bln and has been structurally growing since the December expiry.

4. Ether Bounces BACK

With a two year uninterrupted sell-off relative to bitcoin and investors positioned for the bitcoin halving, ether made a surprise come back in February rallying nearly 40%.

Futures volumes surged with a number of days trading north of $4bln.

Interestingly implied volatility of ether relative to bitcoin had been trending upward since the end of 2019. As crypto options markets become more liquid, there will be come more reliable indicators over time of market expectations.

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