Analytical review. Weekly 23.08.2021

Last week started with a slight market consolidation. In the middle of the week we could see a quite significant increase in total cryptocurrency market capitalisation from 1.86T USD to 2.09T USD ( a 12% gain). The index is currently at 2.13T USD.

The market’s main growth driver was naturally its main trend-setter — BTC. After a short-term decline from the middle of the week, the main cryptocurrency rose first by 12.9% to 49 700 and then surpassed the 50 000 mark. If BTC gains above 50 000, it is likely to continue moving towards the 57 000 level.

ETH has followed a similar pattern over the past week, declining slightly and then rising by 11.7%. At the moment, the second cryptocurrency is trading around the 3340 level.

By analysing the financial flows of cryptocurrencies between exchanges, smart contracts and users, we can see that as the price rises, there is a small influx of BTC into exchanges. It is likely that some short-term holders decided to sell their assets during the local peak.

ETH balance on exchanges has shifted to withdrawal zone, as well as USDT.

Open interest levels in BTC and ETH futures continued to rise steadily over the past week. The increase in BTC trading volume is likely due to the overall positive news backdrop, hash rate recovery and accumulation of BTC by miners and investment from large funds. In the case of ETH, the role of the main asset for the DeFi industry so far (with blockchain volume now at an all-time high) and the effect of the past network update (and expectations from the transition to ETH 2.0) are positive factors.

Among the major news items of the past week are the following:

Bloomberg, together with Galaxy Digital, has announced the Bloomberg Galaxy DeFi Index (ticker: DEFI) launch. The protocols featured in the DEFI Index are selected based on the level of institutional investor presence as well as the quality of pricing. Each participant accounts for no more than 40% and no less than 1% of the total value of the Index. DeFi protocols will be considered for addition to or removal from the Index on a monthly basis.

Ethereum scaling solution, Polygon, will create a decentralised autonomous organisation (DAO) for the DeFi sector. Polygon aims to attract 100 million DAO users and invite that community to give its opinion on the current development of its DeFi, the company said in a post on the Medium platform.

Coinbase has received board approval to invest USD 500M in crypto-assets. The company announced this on its blog and twitter. In the future, the company also plans to allocate 10% of its profits to such investments.

Worldline and Bitcoin Swiss have announced a joint omni-channel cryptopayments solution — WL Cryptopayments. The integrated service will allow more than 85 000 Swiss merchants in Worldline’s network to accept Bitcoin and Ether as a means of payment at online and offline outlets.

In another wave of institutional adaptation of cryptocurrencies, insurance broker Massmutual is opening up to its investors the possibility of investing in Bitcoin with NYDIG. At the same time, commodity fund Neuberger Berman intends to invest up to 5% of its assets (USD 20B) in Bitcoin, as announced in an SEC notice.

More than 20 venture capital funds have applied for Bitcoin futures ETFs. The SEC chief said that these applications have a high probability of approval. The capital inflows could be enormous, but one must consider the fact that this is not just a physically backed fund, but also a futures ETF. Unlike a Bitcoin ETF, it does not track the actual market value of the asset in the moment. Will a futures ETF generate the same demand from investors as a classic one? We will have an answer to that question once the SEC finally starts responding to substantive bids.

The options market volume increased for the fifth week in a row. The size of open interest on deals with execution date at the end of the third quarter — September 24 increased by 6.3% and made 47 875 BTC. However, unlike previous weeks, put options prevailed this time. The increase in the number of put options was in the 42 000–48 000 range. This could indicate a desire by traders to hedge in case the spot market price fails to consolidate above 50 000. For call options, the main activity came at 64 000 and 70 000.

In terms of open interest, options with exercise in December increased by 3.5% to 46 178 BTC. The 80 000 level for call options continues to attract traders’ attention.

Total market size across all expiry dates increased 6.9% to 161,743 BTC. The main increase was noted at the level of 50,000 for call options, and 40 000 and 44 000–46 000 for put options. These levels remain relevant for the second week in a row, indicating their importance in the current trade.

The volume of open interest for options with an execution date of 24 September increased by 3.2% to 302 466 ETH. For call options, the main increase in market activity was recorded at 3 500, 4 500 and 6 000

For options with execution date on December 31st, the increase in trading volume was 2.6%, with total open interest at 426 139 ETH. Most of the increase was in call options, with the most popular levels being at 7 000 and 15 000.

Globally, open interest rose by 2.4% to 1 270 877 ETH at all maturities. The main levels traded were call options at 5 000, 15 000 and 30 000.

PRO MODE

In addition to standard market analysis parameters such as the volume of open positions in futures and options, which are available to a wide range of readers, under the new “PRO MODE” subheading we provide an overview of some market parameters that require special training or experience.

MarkIV for short term BTC options (via Derebit&GVOL info)

Put and call option curves have remained almost unchanged in the short term over the past week. As the spot price rose, expectations of an explosive increase in the value of BTC declined, which was reflected in lower option trading activity. The main levels traded were call options with strike marks in the range of 50 000 to 54 000. Next in importance were at 70 000 and 100 000 — options at these levels were actively used in call spread strategies where the purchase of a call option is combined with the sale of higher value call options.

MarkIV for long term BTC options

Globally, selling put options is still not popular now, traders’ expectations are extremely optimistic. In the absence of significant negative news volatility decreases and growth becomes smoother.

MarkIV for short term ETH options

In the ETH market, the situation is largely similar to that of BTC: the decline in volatility also reflects lower expectations of sharp price increases in the spot market. Call options remain the predominant tool for traders.

MarkIV for long term ETH options

In the longer term, despite the continued general confidence in price growth, there is a significant divergence in growth expectations over time. For example, the expected volatility for options exercisable in December is significantly higher than in September, which could indicate that the main growth is expected towards the end of the year.

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