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QCP Capital crypto market update - May 26, 2020

Commentaries & Views

BTC continues to trade sideways and looks likely to trade within a 8-10k range in the near-term. Selling pressure from speculators who went long into the halving along with the usual old hands met by substantial dip-buying amidst the persistent optimism in traditional markets. The inevitable result is a drop in volatility. Implied volatility in the front-end fell 10% from last week, trading under 70% now up to the 2 week tenor. This is on the back of the collapse in realised volatility which has fallen from 99% mid-May to 60% today.

Keep an eye out this Friday as over 40k BTC worth of options will be expiring. We don't see any particular catalyst for volatility but with the futures basis drifting lower again and USDT back in prolonged discount territory (first time since mid-March), something might be brewing. We've also been trying to understand the persistent front-end Put skew and we think a large part of it could be borrowing-lending players hedging downside risk after the nightmare of Black Thursday. The re-hypothecation model is extremely profitable but also vulnerable to liquidation gaps (be careful who you lend to!).

We continue to favour selling short-tenor options especially Puts as 6-7k are price levels we would like to be accumulating BTC. And if BTC continues to stay in this price range, vols will surely continue to collapse.

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