We’ve just completed H1 2021, and yet it feels like a lifetime has passed in crypto land. Where will we go from here?
Like It or Not, Institutions in Crypto Are No Longer a Meme
While institutional buying has been net positive for the overall crypto market cap, the market now seems to be in cognitive dissonance over the onslaught of regulatory FUD amidst record institutional participation rates. In the past week alone, we’ve had George Soros announcing crypto allocations and a U.S. House Financial Services Committee hearing on crypto. This would have been unheard of just a year ago.
With many calling for a new bear market, is it surprising that cryptocurrency prices have stalled at current levels?
For perspective, let’s zoom out and look at the facts.
The Upside:
- YTD, Bitcoin is still up 18.5%, while ETH is up 205.9%
- Private fundraising activity remains healthy, with attention focused on building out institutional infrastructure for crypto
- Inflation narrative hasn’t changed — CPI figures are grossly underestimating reality on the ground
- Western institutional involvement in crypto/DeFi is only growing by the day
- El Salvador has set a precedent for sovereign involvement
Source: Skew
The Downside:
- USD direction still dictates crypto valuations in the short run, and the hawkish slant from the previous FOMC meeting is still a headwind for asset prices
- Regulatory overhang still exists globally
Fundamentally, in the short run, price action should be muted to the upside while the long-term fundamental bullish narrative is still intact.
Back to the Futures
Source: Skew
Long gone are the days of easy cash-and-carry returns, with front-end perpetuals and futures consistently in backwardation. While traditionally this has served as a bottoming signal for BTC, OI hasn’t recovered from the April liquidation wipeout. Thus, spot flows are likely to dominate price action in the short run.
Source: Coinalyze
Weighing Options
Option IV currently looks similar to funding, with BTC levels muted around 100% since the end of May. Typically, long consolidation phases have portended larger incoming price moves. Nonetheless, we expect any spikes in IV to be transitory and RV to maintain at discount, resulting from burgeoning demand for short premium strategies, also known as the last frontier of easy CEX yields.
Source: Laevitas
Of particular interest is ETH OTM skew. Puts are sustaining structurally higher IV levels, as compared to calls. Uniswap v3 LPs are the likely culprits. This could be potentially game-changing for put-call supply/demand structural dynamics. Underpriced downside insurance looks to be a thing of the past — for now.
Source: Skew
