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TI Weekly Research: Wandering and Waiting

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Published on:
June 19, 2021

This week, TokenInsight takes a look at the crypto market and what has happened since May 19th.

TI Weekly Research: Wandering and Waiting

Table of Contents

The steady volatility did not bring about the price increase as expected. Affected by the uncertainty of macro factors, both institutions and individuals were waiting-and-seeing. In the spot market, Ethereum's trading volume fell sharply by $25.33 billion, close to half of last week. Bitcoin's trading volume also declined. A similar situation appeared in the derivatives market, whether it was futures or options, the trading volume came to a low ebb period. From some indicators, professional investors still maintain a positive attitude towards Ethereum and its DeFi ecosystem in the short term, betting on the performance of Ethereum after the upgrade in the middle of the year. For Bitcoin, professional investors tend to believe it to be bearish considering the macro factors.

Low Volatility: Mainstream Cryptocurrencies Lack Momentum for Upward Breakthroughs

btcprice
Bitcoin price changes in the past 30 days, as of 4: 00 on June 18, source: tokeninsight.com

One month has passed since the Black Swan incident that occurred on May 19th. Although volatility has fallen to "near-normal" levels, the price of Bitcoin remains below $40,000 most of the time. Since last month, supervision, interest rate hike expectations, and table shrinkage expectations have followed one after another, which is the reason for the continued wait-and-see of the market. Although a small amount of good news was released in the short term, its stimulating effect on the market tends to last for a short time.

ytdchanges
Year-to-date changes in Bitcoin index price and perpetual contract price volatility, source: gvol.io

As the expectation of interest rate hikes has gradually become clear, from the perspective of skewness, the sentiment of bearish Bitcoin has always continued: regardless of the short-term, medium-term, and long-term, the skewness is still negative, which indicates that the bearish sentiment for Bitcoin is still continued to be included in options pricing.

historicalskew
Changes in Bitcoin options skewness in the past year, source: gvol.io

At the same time, in the futures market, the high premium of Bitcoin futures no longer exists. From the pricing of Bitcoin futures on OKEx, it can be found that the premium of forward futures generally does not exceed 10%, while the price of futures due in the near future is even slightly lower. The current price indicates that bearish sentiment in the Bitcoin market is spreading, and a certain consensus has been reached in the derivatives market.

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Bitcoin futures prices on OKEx, as of 3:00 on June 18th, source: okex.com

In terms of trading volume, both Bitcoin spot and perpetual contract trading volumes have declined compared to last week, but they are much better than Ethereum, which has a heavier wait-and-see sentiment. In the exchanges tracked by Tokeninsight this week, Bitcoin spot trading volume was approximately $65.91 billion, while perpetual contract volume was $458.8 billion. In contrast, the weekly spot volume of Ethereum fell to $37.47 billion, while the weekly volume of perpetual contracts fell to $145.8 billion. Speculators seem to be concentrating their chips on Bitcoin to bet on recent macroeconomic trends to profit.

For Ethereum, the signals from the derivatives market are different. Investors in the options market have higher expectations for Ethereum taking into account the relatively solid fundamentals of Ethereum. This makes the implied volatility be higher than the historical volatility of Ethereum, and the volatility skewness continues to be negative this week -- based on past experience, this is usually a signal that "asset prices are undervalued". Professional investors still maintain a positive attitude towards Ethereum and its DeFi ecosystem in the short term.

graph
The historical volatility and implied volatility of Ethereum in the past 30 days, source: gvol.io

As for the whole market, the impact of macro factors is greater than the impact of fundamentals: Although asset prices continue to be undervalued, investors are still waiting-and-seeing. Under the background of the low ebb brought by macro factors, many investors hope to obtain the opportunity to acquire high-quality assets at a low price, while the seller will not choose to sell it at a low price. The game and see-saw between the two sides has led to the new low on trading volume of Ethereum in nearly a month.

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Ethereum trading volume changes in the past 30 days, as of 3:00 on June 18, source: tokeninsight.com

Similarly, due to the influence of macro factors transmitted to Ethereum and then transmitted to the DeFi market for a second time, this week, the market value of several major project tokens, such as UNI, SOL, KSM, etc., has shrunk to a certain extent. Among them, the market value of Polkadot's Kusama testnet has shrunk by 26.3% this week and is now $2.85 billion, while other projects have fallen by less than 20%. However, most mainstream projects are in a slow downward trend, and the wait-and-see sentiment has caused certain adverse effects on the DeFi market.

ksmprice
KSM token price changes in the past 7 days, source: tokeninsight.com

From the perspective of the futures market, the pricing of Ethereum futures by futures investors is more affected by macro factors. The price of forward futures due for delivery at the end of the year has been lower than $2,400, which has not generated enough premium due to fundamentals.

eth2
Bitcoin futures prices on OKEx as of 3:30 on June 18th, source: okex.com

Focus on the "Great Delivery Day"

June 25 is the mid-year "Great Delivery Day" of the derivatives market. Options and futures of the current quarter, second quarter, current month, and next month will be concentrated on this day for centralized settlement and delivery, which often brings large spot price fluctuations, or may also increase volatility. In a bull market, the impact of delivery on the market is not obvious. However, in a downward market, derivatives delivery often triggers a price drop on the Thursday before delivery, and the price slowly recovers after the delivery is completed. The scale of delivery on June 25 can be said to be the largest so far: Ethereum options contract alone will have more than 580,000 expire on this day, and Bitcoin will also have more than 65,000 options contracts expire on this day. At the same time, the allocation of derivatives positions for the third quarter and the second half of the year will also occur around that date. The above events may cause major fluctuations in the prices of mainstream crypto assets.

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Ethereum options contracts open interest, source: gvol.io


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Bitcoin options contract open interest, source: gvol.io

The underestimation of the price of Ethereum may continue until around the delivery date. The reason is that the low valuation period is usually a good time for derivatives allocation, which can control risks at a lower cost and obtain more benefits. For Bitcoin, there are currently no positive signals, so its price may follow the current range (between $35,000-$40,000) until around the delivery date. However, due to the increased uncertainty in the macro market, the "Great Delivery Day" of derivatives will also bring higher uncertainty, and investors are gradually becoming conservative: currently in the options market, more than half of investors have adopted the "sell strategy" to counter the price declines.


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Bitcoin options trading in the past 24 hours, as of 4:00 on June 18, source: gvol.io



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