Pionex Trading Desk 4/5/2023

Thoughts

It is a tough time to make money, with BTC wedged in such a tight range and ETH showing a bit of outperformance in the past 2 days.

Q2 might result in a quarter focused on ETH and Airdrops, while BTC takes a breather. Price for BTC and ETH has essentially been flat for 3 weeks. This is likely due to the big resistance faced by both BTC and ETH. Also there is no clear narrative after the banking failures of last month. We are now caught between the cross current of Fed hikes, inflation and economic slow down once again.

After a slew of bad economic data showing recession signs, ISM Manufacturing PMI 46.3 lowest since Covid, Jolt’s 9.8Million first time under 10 Million since Covid, and ADP payroll 25% miss. I believe this will be the last time we get whiplash signals in economic activity and new data will show continued contractions from now on.

We do not know for sure how the Fed will react in the case of a recessionary environment. If they react as quickly as they did 3 weeks ago then BTC will have a strong bull run. However, if the Fed does not cut rates while we are in a slow down it remains to be seen how well BTC will act in that type of environment. We would like to consider all scenarios but the highest probable case is that the Fed pivots to support the economy. We believe that the negative economic factors finally showing and lessen demand fears as shown by the OPEC cuts will be enough to dampen inflation which will push the Fed to pivot.

Selling vol on any rallies for BTC in the following weeks should work out well. ETH will have speculative long OTM positions driving up the vol due to the Shanghai upgrade. I believe that can be sold into while also considering the price action around $2,000.

Overall I do not believe we will be getting a big pump in Q2. Many are comparing the current environment to 2019 of the last BTC cycle. During 2019 there were a slew of positive developments, more exchanges adding margin and leverage, BTC ETF in the works, multiple countries supporting development of Blockchain technology, and Facebook Libra PR. 

Technical

This tight consolidation below resistance still gives me an uneasy feeling and signals we are holding strong. We retested support several times and trades close to resistance with wicks above. However, Bitcoin made this type of move back in 2020 as well, consolidating for 3 months before showing a true direction. 

This time we have a passive supply on the market from Bitcoin seized from Silk Road, Mt.Gox and Chinese companies that operated illegally. It is expected to at least create ~1 Billion in passive selling pressure. So due to this and lack of positive news I believe Bitcoin will have a hard time piercing through the $29k long-term resistance level. 

Options

BTC 1d 25 delta skew has a +2% skew to the upside showing a higher interest in calls. The skew gets larger as we go more OTM +10% IV for 1d 5 delta. IV has become compressed starting last week as we have been consolidating in a tight range for the past 3 weeks as we had predicted. ETH 5 delta skew has a +10% skew to the upside which is due to the traders taking out lotto’s on expectation of a sharp rise due to the Shanghai upgrade. 

BTC Max pain for the next 3 days is $28k. We believe BTC will expire around this area and the rest of the week will be quiet. 

Friday 4/7 expiry BTC options has 1 Billion Notional value and a C:P ratio of 2:1. Instead of downside protection I observed more OTM calls to gain upside exposure. Large quantity of $31k and $33k calls.

Trade Placement

After this long consolidation we believe things will stay quiet or have a stable move down towards $25,000. So we are focused on selling volatility when it comes back into the market. Right now we don’t believe the market will have much of a change for the rest of the week so we are placing ETH $1,750 Buy-The-Dip expiring 4/7 and ETH $2,000 Covered Gain expiring 4/7. If you have BTC instead we would place $30,000 Covered Gain expiring 4/7.