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Web3 Watch – 13 Oct 23

Our latest web3 piece is hot off the press, just in time for your weekend. In this edition, we cover:

🔓Arbitrum grant season
🎯Celsius targets to pay back creditors by end-2023
🥸SocialFi: Exploits galore
💰Binance the stablecoin kingmaker and the curious case of TUSD and FDUSD
📈Ethereum developments
🐕Kabosu, the OG Doge, to be immortalized

Read more here: https://qcp.capital/featured-article/web3-watch-13-oct-23/

QCP Market Update - 18 Oct 23 (UPS!)

Monday's Cointelegraph Spot ETF tweet hoax proves that there's only one game in crypto right now - the BTC spot ETF.

The more than $2000 spike and reversal in BTC on the fake news showed the strong anticipation of the industry towards this event.

Unfortunately we do not expect the actual SEC approval for any application or conversion to take place this year, which means the larger BTC trend below 25k or beyond 32k is beholden to macro winds for the rest of Q4.

As yet, the jury is still out on whether we will have a Q4 macro risk-off.

However we believe risks are firmly tilted to the downside from here for equities and bonds, where a selloff on both will drive a major risk-parity catastrophe.

More pertinently, the jury is also out on whether BTC will rally on a "flight to quality" as Blackrock CEO Larry Fink expects (https://x.com/Swan/status/1714006347803443603), or sell-off as a high beta risk asset in such a risk off.

If BTC indeed proves a safe-haven in this sell-off, then we believe that will mark the start of a major multi-month BTC bull market to come.

For this week, we have US earnings starting in earnest today, and Powell speaking on Fri (00:00 SGT).

We are particularly interested in Tesla's earnings after the bell today - whether they have dumped their remaining 25% BTC after revealing they had already sold 75% of their holdings (30,000 Bitcoin) in last quarter's earnings call.

Our main reason for being bearish on equities is the extreme consensus view related to the Q4 seasonal rally.

However, breaking down the NASDAQ return into parallel years - we find that October is a key inflection point for markets, rather than always being the springboard for a rally.

As we approach the end of the global hiking cycle, you would have to believe we were in 2007 or 2017 (flat/positive Q4), rather than closer to 2008 or 2018 or even 2000 (negative Q4) (Chart 1).

We think the biggest trigger will be an exponential rise in US real rates from here, when consensus is again at an extreme expecting lower rates (Chart 2).

Biden and Yellen gave a major shot in the arm for bond vigilantes this week by openly declaring their "ability" to support both the Ukraine war and the Israel war, with Biden's response in particular (https://youtu.be/d403nALfQrE?si=SE7L3qHJSgqni3u6&t=577 ) looking like it will age extremely poorly.

The hospital bombing in Gaza overnight represents a major escalation in the conflict on the eve of Biden's arrival in Israel.

Being the 50th anniversary of the Yom Kippur war, both sides have a vested interest to not back down this time, a risk we believe markets are still underpricing.

Furthermore, with US citizens both killed and taken hostage by Hamas, the US would undoubtedly have to get involved this time.

With Biden setting a major precedent for a sitting US President to personally visit Ground zero of a war zone on the eve of an actual war, this sends a strong message that this time is different.

An outright sell signal for equities would be Iran's direct participation in the conflict, or worse, US boots on the ground.

NASDAQ is showing a bearish ending diagonal (Chart 3) and a sharp move down would no doubt drive BTC out of its 6 month range (Chart 4).

In light of this major catalyst, we have launched a new product to take advantage of the BTC opportunity here.

USDC Denominated Principal Protected Participation Structure (UPS) is an investment product which provides investors exposure to BTC (or ETH) within a fully principal protected structure.

Whether bullish or bearish, buyers of UPS will get exposure to upside or downside BTC (or ETH) moves, whilst ensuring that their principal is protected from the price of the underlying BTC and ETH and returned to them at the end of the tenor.

Get in touch with us to learn more: https://qcp.capital/#contact

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QCP Market Update - 24 Oct 23

We were positioned well into this breakout move, long ETH vol in the Nov and Dec tenors (especially long gamma at the 1700 strike), long ETH risk reversals (long call, short put) and also long BTC vol in the Dec tenor. This allowed us to take on the record two-way option flows from the last few days.

In addition to that, we had a structural long BTC position in the form of a Dec Call Fly (32k/38k/44k). We bought this for $380 per BTC in September when spot level was 26,830 and took profit on this today at $1,020 per BTC (full trade details at the end).

This move continues to be driven by the spot ETF story, in particular the anticipation of it again, that has driven BTC's outsized demand.

While yesterday's headline was not a definite SEC approval, steps taken by Blackrock including a DTCC listing and tickerization (IBTC) gave the market hope that the SEC approval is imminent.

However, we do not think that this signals an impending SEC decision in the coming week.

Instead we believe the SEC will avoid playing the role of kingmaker, sticking with its own precedent set during the BTC/ETH futures ETF approval process and will wait to approve multiple managers at the same time.

As such, by waiting for the next 6-7 applications to reach the listing standards Blackrock has supposedly met, it would likely take us into the start of next year.

Afterall, the SEC would not have already postponed Blackrock's November deadline prematurely knowing otherwise.

For us, Blackrock's early listing yesterday was instead their attempt to remind the market of their "first-mover" status, and cement this differentiation even if the SEC does not award it to them eventually.

Nonetheless with this bullish break of 32k, we believe the market has started to price in an approval as the base case. The only question now is when the approval will happen.

So where do we stand position-wise after all this?

1. We have decided to close out some of our long topside exposure here, ahead of the 36k channel resistance and 38.2% Fib retracement (Chart 1).

2. Our main reason is that this move remains purely anticipatory, and that approval could only take place early next year, much later than the market expects now.

3. With this level of anticipation, initial volumes need to be above the launch of the BTC futures ETF, or risk the kind of disappointment we saw with the ETH futures ETF earlier this month.

3. More importantly, we are seeing stretched positive perp funding rates especially on Deribit (BTC over 70% and ETH over 100%) as well as elevated short-end ATM vols (BTC up to 75%!) - typically indicative of an exhausted short-term move.

4. Risk reversals also reached the most extreme level since the entire past year rally (from -5 to +7.5), and the pullback now to +2.5 is indicative of funds overloaded with long topside and taking profit on their positions.

5. This means that while we believe spot has entered a new higher range between 32k-36k, what the derivative markets are implying looks that levels are a little stretched here.

Going long UPS (which we shared about last week - https://news.1rj.ru/str/QCPbroadcast/1089 ) would have worked well in this move. This structure is principal-protected and offers zero-cost exposure to the upside on breakouts like this week.

Alternatively, structures like the BTC Call Fly that we put on, offer excellent risk-reward for anyone looking for topside exposure without having to pay hefty premiums.

BTC Dec 32k/38k/44k Call Fly
Cost: $380 per BTC on 18-Sep (26,830 spot ref)
Maximum payout: ~15.8X
Take-profit: $1,020 per BTC on 24-Oct (33,500 spot ref)
Realized profit multiple: ~2.7X

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QCP Market Update - 3 Nov 23

In line with our post last week outlining the key 36k level https://news.1rj.ru/str/QCPbroadcast/1094, today BTC kissed the 38.2% Fibonacci retracement and upper channel trendline and backed off (Chart 1).

This latest rally however, was less about spot ETF developments and more about macro forces. This is because a smaller than expected Treasury Q1 supply estimate yesterday and dovish FOMC sent bond yields tumbling and in turn risk assets soaring.

Whether this marks the start of a new global equity and bond uptrend remains to be seen, as the macro picture essentially remains unchanged, outside a correction of overly bearish bond sentiment.

As BTC spot price grinds higher however, perp funding, and term forwards (Chart 2), implied volatility and risk reversals (Chart 3) across the curve continue to remain or extend further at extreme elevated levels. For those positioned for this derivative implied upside breakout, the spot ETF approval cannot come soon enough!

Today after the bell we have Coinbase and Apple earnings, and NFP tomorrow - all of which could perhaps provide fuel to realize the implied volatility and especially lofty call premium.

Above all, it will take the spot ETF approval for us to start the new exponential leg higher. At the same time, we expect only a major rug pull from Gensler will be able to take us back below 32k at this stage.

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QCP Market Update - 10 Nov 23

What a week it has been! Since our last post, BTC continues to hold above the key 36k level while ETH rallied past 1900 to 2100 overnight.

ETH's outperformance over BTC overnight can be attributed to Blackrock's 19b-4 filing with NASDAQ for an Ethereum Trust, which will herald Blackrock's filing for a spot ETH ETF in the near future. We expected a similar playbook to when Blackrock first submitted an application for a spot BTC ETF.

There has been a flurry of activity across numerous venues as participants continue to bet on the spot BTC ETF approval, as well as fear of missing out (FOMO) starting to kick in.

BTC futures open interest on CME has overtaken Binance, a sign that institutions are serious about getting their feet wet and are betting on a potential spot ETF approval (Chart 1).

Perp funding continues to be elevated, while term forwards and risk reversals continued their grind higher throughout the week.

While we expect the approval for a spot BTC ETF to be delayed till Jan 2024, a new narrative surrounding a spot ETH ETF should be enough fuel for animal spirits to take hold once again with crypto prices steadily grinding higher towards the end of the year.

Macro developments have also been supportive of risk assets. Job data in the US has for the longest time pointed to a strong US economy, whilst soft data has alluded otherwise. November's NFP print however, was not only lower, but even came below consensus!

With the macro picture now turning slightly rosier in the short term as rate pause expectations are firmly in place, we expect crypto prices to stay supported. Dips will be swiftly bought into as FOMO traders try to get onto the train.

However, caution is still warranted as we are at crucial resistance levels, and BTC is printing a triple bear divergence with the RSI which has been a reliable signal for momentum stalling (Chart 2).

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QCP Web3 Watch - 13 Nov 23

We're back with the latest edition of Web3 Watch where we cover:

🧑‍💻The latest in Ethereum - Delays in Dencun (Protodanksharding) upgrade, running full nodes on mobiles

🔐Re-staking and liquid staking - Eigenlayer holds a vote to select the next LST protocols to be integrated, the launch of EtherFi mainnet

2️⃣Layer 2 developments - Arbitrum staking proposal & Orbit gets ready, Scroll launches on mainnet, Polygon POL Token replaces MATIC

☀️Tokens galore - Solana’s rise, impact of FTX’s asset liquidations on $SOL, Celestia Mainnet and token launches

... and more. Get the latest here: https://qcp.capital/featured-article/web3-watch-13-nov-23

QCP Market Update - 24 Nov 23 (Structures - Accumulate x HYPE)

We are past Thanksgiving and heading into the final stretch of trading for 2023.

Since Gensler's Halloween tweet wishing a 'Happy 15th anniversary to Satoshi’s famous white paper that started crypto', BTC has essentially been trading sideways while the rest of the crypto world has been rallying.

With the Alt-casino in full swing, we have seen a slight correction in BTC dominance as well as ETHBTC.

However, it looks like just a blip in the trend as both BTC dominance (Chart 1) and ETHBTC (Chart 2) remain within their exponential trendlines and look to reassert again.

As BTC continues its grind higher as outlined in our last 2 market updates, https://news.1rj.ru/str/QCPbroadcast/1100 and https://news.1rj.ru/str/QCPbroadcast/1096, we present 3 main thoughts from here going into year-end and 2024:

1. Date of ETF approval
Following Gensler's Satoshi Halloween tweet, we say if he really believed in symbolic dates, he should approve the spot ETF on 3 Jan 2024 - that date being the 15th anniversary of the Genesis Block.

If not, the first actual deadline to meet is 10 Jan 2024 - the final deadline for ARK's application is included in the first approval batch. And in the case ARK is rejected and the rest postponed yet again, the true make-or-break deadline is 15 March 2024 - where Blackrock and the main bunch of candidates face their own final deadline.

2. Halving
We're now just ~150 days to the next halving, and going by previous cycles, while the true exponential move really only occurs a few weeks post-halving, we are nonetheless in the grind higher phase from now until then (Chart 3).

3. How to position for both events
This is a market tailor-made for structured products - where the grind higher and bullish narratives means you want to be as leveraged as possible, but the lack of a near-term exponential move mean you also don't want to be paying premiums as volatility will likely compress.

Accumulators have worked extremely well in 2H, and we continue to believe this is the structure to have as it allows cheap buying of BTC in size.

At 37,350 spot ref, the desk can structure an accumulator that buys BTC every week at 33k, with the potential to buy double the amount below that. Only above 43k does this buying stop - levels which tie-in perfectly with the levels on BTC.

However, our trading team has created a new product called HYPP (High-Yield Participation Product) , which can be paired with the Accumulator to enhance it further and ensure even on an exponential move above 43k we will profit.

HYPP is principal protected, and will pay a fixed USD cash coupon above 43k. Which means if spot remains between 33k and 43k, the structure is buying BTC every week at 33k until April. Below 33k the structure buys double the BTC. Above 43k and you get paid a fixed USD coupon every week instead, which is annualising 40% right now until April.

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