SignalPlus Volatility Column (20230718): BTC Performance Weak, Sector Rotation Effect Significant

Before the next FOMC meeting next week, the Federal Reserve has entered a blackout period and cannot use public information to reshape market expectations for interest rate cuts and reverse the free fall of the US dollar since last week. This also makes retail sales, initial claims for unemployment benefits, and existing home sales to be released this week become the main factors that may affect the market before the meeting.

In terms of cryptocurrencies, the rise of BTC clearly shows signs of fatigue, and market attention is more focused on smaller coins such as XRP, SOL, and LINK. The rotation of these smaller coins intensifies, and the trading volume ratio of the top 20 altcoins to Bitcoin in the past 24 hours has risen to nearly 50%. The future trend of BTC may continue to be sluggish for a period of time.

Source: coinmarketcap, Top Trading Volume Coins

Turning to options, the market has lowered expectations for the uncertainty brought by recent data releases and decisions, resulting in a significant decline in volatility for BTC/ETH front-end, returning to the 25th percentile level of the past three months. The medium-term 2m/3m BTC IV has slightly increased, while ETH has remained almost unchanged.

In terms of bulk trading, the inability of BTC to rise has resulted in a clear shift in direction in the market. In late August, a large number of Short Call Spreads (30000/34000, 32000/38000) were traded. However, on the other hand, there are still traders who are optimistic about the medium to long-term rise of ETH. The largest strategic trade in the past 24 hours was the bullish 29 SEP 23 Call Spread (2000/2500, 2100/2300), as well as the September 1700/2200 RR. In addition, the scattered Short Strangle strategies in late July and August partially explain the decline in the front-end IV of ETH today.

Source: Deribit (as of 16:00 UTC+8)

Source: SignalPlus, front-end IV is declining

Source: SignalPlus, front-end IV has dropped to the 25th percentile level in the past three months

Source: Deribit Block Trade

Source: Deribit Block Trade

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