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Latest Releases

Sep 21/2021

Signs of Seasonal Market Exhaustion

Sep 20/2021

Fearful Market Shakes Out Little Leverage

Sep 16/2021

Did the Market Overreact Last Week?

Sep 15/2021

Arbitrum’s Bridge Activity and Its Impact on DeFi Sentiment

Sep 14/2021

The State of Crypto Derivatives

Sep 13/2021

September Blues, Arbitrum Goes Off, NFTs Aren’t Dead

Sep 9/2021

Ethereum Congestion & L2’s Needed Jolt

Sep 8/2021

Liquidity Crisis: A Post Mortem of Yesterday’s Events
Trending

Sep 7/2021

Market Troubles, ETH Deflation, NFTs Cool Off

Sep 2/2021

L1 Performance, Funding Spikes, Options Get More Expensive

Sep 1/2021

ETH Breaks Out, Benefits Big From NFT Craze

Aug 31/2021

Fiery Incentive Programs and a Silver Lining for BTC

Aug 18/2021

Lido Dominates Liquid Staking

Aug 30/2021

A Look Into This Weekend’s NFT Action

Aug 19/2021

The Evolution of Crypto Price Discovery
Delphi Daily
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BTC Spread Widens
  • In other news, recent market moves have paused L1 season. With that said, ATOM and AVAX are holding quite well, up 84% and 82%, respectively, since the low on Sep. 7th. SOL is, surprisingly, the worst performing L1 over that time horizon, which is unexpected given the strength it had well into Sept.
  • If this was indeed a dip and not a dead cat bounce, as most of us hope, then it wouldn’t be surprising to see ATOM and AVAX continue to lead the L1 sector. Typically, coins that held up strongest during a correction see a commensurate amount of strength as they bounce. If you’re interested in reading more about what’s happening with ATOM and AVAX, check out our recent Institutional posts here – Cosmos and Avalanche.
  • In other news, recent market moves have paused L1 season. With that said, ATOM and AVAX are holding quite well, up 84% and 82%, respectively, since the low on Sep. 7th. SOL is, surprisingly, the worst performing L1 over that time horizon, which is unexpected given the strength it had well into Sept.
  • If this was indeed a dip and not a dead cat bounce, as most of us hope, then it wouldn’t be surprising to see ATOM and AVAX continue to lead the L1 sector. Typically, coins that held up strongest during a correction see a commensurate amount of strength as they bounce. If you’re interested in reading more about what’s happening with ATOM and AVAX, check out our recent Institutional posts here – Cosmos and Avalanche.
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Volatility and Fear
  • This chart is a bit daunting to look at, but fear not. What you’re seeing is the volatility skew — a chart that plots the implied volatility of each strike price across a single options expiry. The perfect volatility skew looks like a smile — low at strikes that are close to current market price with near-even increase in implied volatility as strikes deviate from market price (either higher or lower).
  • Look at the Sep. 24 skew. There’s a long tail for strikes lower than market price and a much less aggressive steepening for strike prices higher than market price. On the surface, this looks like calls with a strike price higher than $45K are trading at a low implied volatility (and are thus cheap). But in reality, this structure is askew because nobody is trying to buy out-of-the-money calls, so activity on those strikes is pretty much dead. The Oct. 1 expiry shows a similar structure, albeit not as lopsided. In short, this implies the market is leaning bearish in the short-term.
  • Now look at the skew for the Dec. 31 expiry. The implied volatility of strikes near current price are fairly flat, and the tails are quite even with a slightly more aggressive skew towards the right. This is almost the perfect skew structure (note how it looks like a smile) and implies that the option market still has a balanced view on markets over the mid-term.
  • This chart is a bit daunting to look at, but fear not. What you’re seeing is the volatility skew — a chart that plots the implied volatility of each strike price across a single options expiry. The perfect volatility skew looks like a smile — low at strikes that are close to current market price with near-even increase in implied volatility as strikes deviate from market price (either higher or lower).
  • Look at the Sep. 24 skew. There’s a long tail for strikes lower than market price and a much less aggressive steepening for strike prices higher than market price. On the surface, this looks like calls with a strike price higher than $45K are trading at a low implied volatility (and are thus cheap). But in reality, this structure is askew because nobody is trying to buy out-of-the-money calls, so activity on those strikes is pretty much dead. The Oct. 1 expiry shows a similar structure, albeit not as lopsided. In short, this implies the market is leaning bearish in the short-term.
  • Now look at the skew for the Dec. 31 expiry. The implied volatility of strikes near current price are fairly flat, and the tails are quite even with a slightly more aggressive skew towards the right. This is almost the perfect skew structure (note how it looks like a smile) and implies that the option market still has a balanced view on markets over the mid-term.
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Not a Deleveraging?
  • Looking at the annualized basis across various expiries helps us ascertain how investors are bidding up certain futures. If basis jumps too high, it means a lot of traders are going long on these futures, and few are shorting them to take advantage of the basis trade. The longer out a futures’ expiry is, the higher the futures premium vs. spot, and thus the higher the basis.
  • Earlier this month, the Sept. expiring futures contract had run up so much that it was offering investors the best basis opportunity on the market. In hindsight, it’s clear this was a sign that the market was getting overheated in the short-term. Shorts executing basis trades weren’t able to keep up with apes longing Sept. futures contracts.
  • Looking at the annualized basis across various expiries helps us ascertain how investors are bidding up certain futures. If basis jumps too high, it means a lot of traders are going long on these futures, and few are shorting them to take advantage of the basis trade. The longer out a futures’ expiry is, the higher the futures premium vs. spot, and thus the higher the basis.
  • Earlier this month, the Sept. expiring futures contract had run up so much that it was offering investors the best basis opportunity on the market. In hindsight, it’s clear this was a sign that the market was getting overheated in the short-term. Shorts executing basis trades weren’t able to keep up with apes longing Sept. futures contracts.
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An Uncertain Market
  • Q1 tends to be a poor quarter for BTC, while Q2 usually brings about positive performance. This year was the opposite, with a stellar Q1 and a poor Q2. But that hasn’t stopped the inevitable September seasonality from throwing a wrench in the bulls’ plans.
  • On the bright side, Q4 is usually a good quarter for markets after a slow, consolidated Q3. But considering this year deviated from otherwise strong quarterly trends, there is, of course, a possibility that Q4 ends in tears as well.
  • Q1 tends to be a poor quarter for BTC, while Q2 usually brings about positive performance. This year was the opposite, with a stellar Q1 and a poor Q2. But that hasn’t stopped the inevitable September seasonality from throwing a wrench in the bulls’ plans.
  • On the bright side, Q4 is usually a good quarter for markets after a slow, consolidated Q3. But considering this year deviated from otherwise strong quarterly trends, there is, of course, a possibility that Q4 ends in tears as well.
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BTC Spread Widens
  • As is usually the case with sudden collapses in market structure, liquidity on the leading futures exchanges saw a meaningful deterioration over the last few days. While this seems to be a common occurrence in these situations, it’s worth noting that the liquidity deterioration today was not as severe as previous corrections — including the one earlier this month.
  • For further context, liquidity tends to deteriorate close to pivot points (tops and bottoms). A large deviation would happen near macro pivot points, and less aggressive deviations near local pivot points. When one side of the orderbook gets exhausted and has few orders, the bid-ask spread widens. Very simply, market makers stop wanting to sell BTC towards the bottom and start bidding it near the top.
  • As is usually the case with sudden collapses in market structure, liquidity on the leading futures exchanges saw a meaningful deterioration over the last few days. While this seems to be a common occurrence in these situations, it’s worth noting that the liquidity deterioration today was not as severe as previous corrections — including the one earlier this month.
  • For further context, liquidity tends to deteriorate close to pivot points (tops and bottoms). A large deviation would happen near macro pivot points, and less aggressive deviations near local pivot points. When one side of the orderbook gets exhausted and has few orders, the bid-ask spread widens. Very simply, market makers stop wanting to sell BTC towards the bottom and start bidding it near the top.
Read More
Volatility and Fear
  • The Deribit Volatility (DVOL) index measures the 30D implied volatility using Deribit’s orderbook. Effectively, this index tries to estimate how volatile the options market expects BTC to be over the next 30 days. The figure is annualized, so you can divide by the 19.104 (square root of 365) to find the daily expected volatility. (You can read more about it here).
  • Ever since BTC dipped a few weeks ago, volatility expectations for it have also slowly grinded lower. However, a less aggressive move down over the last few days has caused a spike in volatility expectations. The market seems more fearful now than it was during the flash crash (which was worse). This highlights the weight of tomorrow’s FOMC meeting on global markets. Hopefully, we shed some of the uncertainty as we progress later into the week, getting better clarity on true sentiment.
  • The Deribit Volatility (DVOL) index measures the 30D implied volatility using Deribit’s orderbook. Effectively, this index tries to estimate how volatile the options market expects BTC to be over the next 30 days. The figure is annualized, so you can divide by the 19.104 (square root of 365) to find the daily expected volatility. (You can read more about it here).
  • Ever since BTC dipped a few weeks ago, volatility expectations for it have also slowly grinded lower. However, a less aggressive move down over the last few days has caused a spike in volatility expectations. The market seems more fearful now than it was during the flash crash (which was worse). This highlights the weight of tomorrow’s FOMC meeting on global markets. Hopefully, we shed some of the uncertainty as we progress later into the week, getting better clarity on true sentiment.
Read More
Not a Deleveraging?
  • On September 7th, over $3B of longs were liquidated in a 12 hour period. The vast majority of these liquidations occurred when BTC fell 16% in only 2 hours. This time around, a little over $1B worth of total positions were liquidated in 24 hours. That’s 1/3rd of the liquidations over double the time frame. Not bad relatively speaking.
  • The lack of deep, cascading liquidations implies this was either not a wipeout or the pain isn’t yet over. It’s possible that traders were just looking to de-risk some of their exposure going into tomorrow’s FOMC meeting. Global equities took a beating on today’s open, which could suggest that uncertainty over the Fed’s stance is the main reason for a risk-off environment across markets, amongst other things.
  • On September 7th, over $3B of longs were liquidated in a 12 hour period. The vast majority of these liquidations occurred when BTC fell 16% in only 2 hours. This time around, a little over $1B worth of total positions were liquidated in 24 hours. That’s 1/3rd of the liquidations over double the time frame. Not bad relatively speaking.
  • The lack of deep, cascading liquidations implies this was either not a wipeout or the pain isn’t yet over. It’s possible that traders were just looking to de-risk some of their exposure going into tomorrow’s FOMC meeting. Global equities took a beating on today’s open, which could suggest that uncertainty over the Fed’s stance is the main reason for a risk-off environment across markets, amongst other things.
Read More
An Uncertain Market
  • Ever since the correction a few weeks ago, funding rates for BTC perpetuals have been slightly depressed. We noted last week that sentiment was fragile, and this is yet another sign of that. Price rebounded a bit from the lows, but funding is still negative.
  • Notably, before the flash crash earlier this month, funding rates were pretty high, which tends to imply an influx of longs levering up. However, this time around, the market was not positioned as aggressively, leading to a slightly brighter outcome.
  • Ever since the correction a few weeks ago, funding rates for BTC perpetuals have been slightly depressed. We noted last week that sentiment was fragile, and this is yet another sign of that. Price rebounded a bit from the lows, but funding is still negative.
  • Notably, before the flash crash earlier this month, funding rates were pretty high, which tends to imply an influx of longs levering up. However, this time around, the market was not positioned as aggressively, leading to a slightly brighter outcome.
Read More
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