Coinvexity 22
With CPI data marginally missing the mark, BTC price action slips before rebounding. In this piece we continue to look at vol action over the last two weeks.
Futures
Despite the sentiment that the SEC plans to put a stranglehold on the crypto industry, futures basis in both BTC and ETH remain skewed towards upside, albeit mildly. Rather reassuringly, the curves remain unchanged following the latest CPI release suggesting the print was largely priced in and that a more explicitly negative data point might be needed to see a material knock on price action.
Volatility
BTC
The ATM IV term structure in both assets has shaken off the prior hysteria (CPI) with the entire curve shifting downward and out of backwardation. In BTC the 17Feb23 expiry alone saw a circa 20% drop with vol dropping 10 vol from 52 to 42 overnight.
Towards the beginning of the month, IV in BTC was pinched with vol printing between 54 and 58 across all tenors. Price action here has dispersed with the 1wk leading the charge lower. Tuesday’s CPI print saw an attempt at a momentary reunification but prices have resumed their slide post-print. 1yr vol remains relatively sober.
After having spent the bulk of Feb in marginally positive territory, skews in BTC continue their dance around parity. The skew on the 1yr remains negative (Calls over Puts) whereas expiries <6mo remain unable to tear themselves from the possibility of a foray towards the downside. The 1wk skew seems unable to break 10vol so far with commensurate Call demand/reduced negative sentiment seemingly dampening flames at each attempt.
Studying the 1mo 25D Skew, 1mo IV ratio (i.e. 25D Skew/IV) shows that price action is apparently recovering from its foray lower. With a present reading of 0.0798 and a correlation of 0.304, we await to see whether a lull in IV will continue to drive demand for downside.
ETH
Vol in ETH suffered a similar fate. Although the shift here on the 17Feb23 expiry is larger in absolute terms, it still comes in at a 20% drop having previously printed 71 vol yesterday, it sits at 57 at time of writing. We fully expect to see changes in the curve here over coming weeks as the Shanghai upgrade- slated to be captured by the Mar expiry, comes into focus.
The story here is not too dissimilar from BTC with CPI anticipation forcing a compression on price action across all tenors before ceremoniously unraveling with 1wk and 1mo proving close bedfellows.
Skews here remain more buoyant than BTC with all tenors positive values, denoting overall outweighed demand for puts here. The near dates remain considerably jittery with the 1wk elevated, in contrast to BTC skews.
Despite this week’s slated economic release being done with, 1wk vol remains elevated relative to 1mo. We expected the values to resume normalcy (a ratio of <1) as event risk washed out but it seems some residual risk remains here.