Pionex Trading Desk 3/13/2023
News & Events
An absolutely crazy week in the markets.
- SVB and Signature bank took over by FDIC
- Fed, Treasury, and FDIC will cover all depositor’s money secured or unsecured in the banks taken over
- Fed creates a new Bank Term Funding Program (BTFP) for all banks who pledge treasuries and MSBs valuing them at their full value (no discount)
What started off with just Silvergate failing has led to SVB’s collapse and in the same week Signature bank followed suit. While SVB’s collapse was not contagion from Silvergate the cause was similar. Massive withdrawals were due to loss of confidence, insufficient liquid assets, and losses due to the forced selling of treasuries. SVB was the 15th largest bank in the United States and the 2nd largest bank failure ever. This has similarities with the 2008 financial crisis which was also a liquidity crisis but instead of treasuries, it was the decreasing value of the real estate.
The current Bitcoin rally is driven by the following.
- Fed is potentially done with rate hikes 50% chance of not raising next FOMC meeting
- QE with Fed BTFP program
- Depositor money is guaranteed so less chance of contagion
- Bitcoin is not at risk of bank runs
The Fed is starting temporary Quantitative Easing (QE) through its BTFP program. Taking the bank’s long-term assets as collateral and giving them the value of their collateral at par. This means more money in the financial system which is what QE is. Our view is that the Fed will let this BTFP run to stabilize the economy a bit but will still continue hiking rates. Their focus is financial stability and lower inflation, they will not give up that easily. With the current macroeconomic factors even though Bitcoin is having a rally we believe this adds more future issues to the crypto ecosystem. With the failure of 2 major crypto banks that provided fiat on-ramp in the United States and the collapse of SVB, we could see regulators shut down all banks with a high amount of crypto exposure isolating the
We are up 20% in two days, and the probability of continuing to the upside is low. We have had 1 day 10% moves only 7 times total in the past 4 years. 20% move in 2 days is even smaller approximately 1 time in that time period. Also, we have a typical 5-day run-up into a potential reversal candlestick pattern. If we get a bearish or doji candle (drawn above) on the fifth day a reversal is likely to happen. I would give it a 75% probability to the downside given the macro risks + candlestick formation.
Options & Trades
Due to these events, there is high volatility on both sides of the options market. The Skew of the ±25 delta options is approximately even, which means traders are expecting an equal possibility of a move to either side. However, both sides have extremely elevated IV at ~109%, considering the $1000 OTM call & put. Due to this, we are taking the following trades. We will take these 1 and 2-day expiry trades but be warned there is a CPI data release tomorrow. However, we expect a slight tick down in inflation and do not believe this would have a huge impact on the market. Regardless we would give Bitcoin retracing to $21k – $22k a 5% probability. We expect consolidation around current prices ±$1000 given a higher bias to the downside than the upside.