Coinvexity 6
There is no remembrance of men of old, and even those yet to come will not be remembered by those who follow.
@SousChef
Only two weeks ago, we were eyeing up the psychological 50k level, and now it seems all ambition has fled. The ubiquitous celebration of extremities that is the Fear/Greed Index is muted. Ideals have vanished and we're back beneath 40k. Perhaps an astrologist a chartist might argue we're still in the rebuilding phase, seeing that we haven't radically broken through the below illustrated channel (Fig 1). However if this is to be believed, this itself leaves room for a move lower still whilst remaining within the broader ascent.
This neat retracement has manifested in the form of sunken Vols. (Fig 2.) shows the 2wk change in IV mids and spread- with marks lower across the curve (near end being hit the hardest). 25D BF shows a near uniform collapse in coinvexity* with riskies aggressively tilting in favour of Puts. This is all accompanied with a complementary side dish of widened spreads, reflecting the overall hubbub and excitement you would expect with a swift 18% retracement. Funny how it's heresy on the way down but prophetic on the way up.
Spreads appear generally well behaved, however the BTC 1wk ATM expiry seems out of step suggesting there's fierce interest in this expiry (at time of writing). (Fig 3.) Outright vols in ETH (Fig 4.) aren't faring too well either, however the overall curve appears marginally healthier with the spine narrowly elevated, tamer Riskie skew and a more pronounced Butterfly. On the whole, spreads seem a tad narrower, suggesting ETH is better composed than its weary counterpart.
For further colour on spreads, you can visit our dashboard and view Rolling maturity bid/offer for IV with the ability to view ATM, 25D and 10D for both Puts and Calls (Fig 5). Colour! Colour! Colour!
*Shout out to all the Coinvexers who made it this far into the write up.
Bonus points for correctly guessing scripture
What happened to U.S. crypto buyers?
Among many circles in crypto, ‘Asia session’ has grown a reputation of being not the best time to get long. The crowd has been right about this one.
Cumulative gains for a trader on Beijing time that purchased Bitcoin at 8am and sold at 6pm everyday are negative since since January 2020! There are a few possible explanations for this but the most likely is that increasing government crackdowns on crypto in the region (many derivatives exchanges were shutdown entirely) prompted many locals to stop buying crypto or sell their holdings entirely. Each time China ‘banned’ Bitcoin, a new set of traders capitulated.
For Ethereum - the divergence is even more extreme:
Why the U.S. session has seen such drastic outperformance is a little less clear… One can attribute it to a mix of stimulus checks, a roaring stock market, ‘institutions’, cultural differences, but none of these are necessarily unique to the States (except maybe the stock market, although none of the post-Covid recovery gains were made during the cash session).
Whatever the reason, it’s notable that this ‘U.S. effect’, which was rock-solid for the better part of the last two years, has begun to fade. Taking a look at Ethereum since just last September, the liquidation in China is clear, but nothing stands out about U.S. performance.
And for Bitcoin (again, the sell pressure from Asia is really clear).
At this point a possible explanation seems to be that the striking U.S. stock market outperformance was the culprit, because things lost their luster around the same time the S&P500 stopped making new all time highs almost daily. Since the stock market’s overnight performance (Europe and Asia session) outstrips that of intraday performance, we would think that crypto was not glaringly outperforming during U.S. hours because of macro risk-on pushes happening at those times, but probably just because of the wealth effect, complacency, and risk-seeking that an incredibly strong stock market bring.
Since U.S. investors have ceased to be the most euphoric investors in the world, they’ve adjusted their habit of piling into crypto accordingly, for now.
Hey, Crabman!
This section of the current issue of Coinvexity touches on various metrics ranging from spot-, futures, and the options-market to arrive at a potential market outlook for the near future. We’ll discuss the Binance spot orderbook, global funding rates on the Binance futures market, and ATM-IV on the Deribit options market.
Spot
Coinvexity 4 mentions how BTC was likely going to be stuck in a range [1]. One month later, we’re at almost the same price point. As Fig. 2 shows, the ask wall has since been eaten and price fell back down. There is currently some bidding support that could warrant a bounce, but bid liquidity is nowhere near the level of strength that is associated with typical bottoms. Furthermore, while orderflow on the more influential orderclasses looked promising at the beginning of the year, they are now making equal or lower highs on their CVD despite price having managed to move higher. Coinvexity 1 explores how this occurred on the $100k - $1M class in early and mid ’21 and how it was not particularly bullish [2].
Futures
After four months of mostly negative funding across all USDT-margined coins on Binance, we finally saw positive funding emerge on ~20% of all coins. Coincidentally, BTC topped at this first sign of this strength. Since then, negative funding has been on the rise again but is still relatively low.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F58906fc8-a187-4a2b-82dd-485fd540f8ad_924x568.png)
Options
Finally, Fig. 3 shows how higher front-end at-the-money implied volatility (ATM-IV) is indicative of some (not all) local bottoms. A higher front-end than far-end ATM-IV was last seen in March, leading up to the recent rise in price. However, following the drop back down to $40k, we don’t currently see elevated levels of front-end ATM-IV w.r.t. to the far-end.
Conclusion
While the Binance spot orderbook suggests the possibility of a small bounce, the current level of bid liquidity is not comparable to what is typically seen during bottoms. So, even if there is going to be a bounce, it may not be as long-lived. Global funding rates show that BTC topped at even the hint of overheating. Currently, most pairs exhibit neutral funding. Negative funding is also on the rise again, suggesting fear in the markets but with room to spare. Finally, ATM-IV can be useful to determine local bottoms when the front-end exceeds the far-end. However, this condition doesn’t appear during all local bottoms and is unfortunately currently also not present. So, while the market is on oversold levels, there isn’t much strength present either.
Sources
[1] C. SousChef Mtrl_Scientist, and, “Coinvexity 4,” Coinvexity, Mar. 18, 2022. https://coinvexity.substack.com/p/coinvexity-4 (accessed Apr. 14, 2022).
[2] C. bithedge Mtrl_Scientist, and, “Coinvexity 1,” Coinvexity, Feb. 03, 2022. https://coinvexity.substack.com/p/coinvexity-1 (accessed Mar. 17, 2022).
[3] Mtrl_Scientist, “Material Indicators.” https://materialindicators.com/ (accessed Apr. 14, 2022).
[4] “Laevitas & Mtrl_Scientist collaboration.” https://app.laevitas.ch/dashboard (accessed Apr. 14, 2022).