April 8, 2023
What a month in global markets! The proverbial “kitchen sink” was thrown at the markets in March… a global banking crisis that ended with multiple bank collapses, a large de-peg of the “safest” stablecoin (USDC), a significant ramp up of regulatory rhetoric and enforcement actions, and a face-melting 40% rally in BTC from $20k to $28k.
On the back of this 🏀 March Madness 🏀 monthly trading volumes on Paradigm exploded to a new ATH of $17B 🚀, surpassing previous ATH’s by ~60%🔥. Our options market share also continued to rise, reaching its own ATH of 38% 📈.
And finally, BTC upside buying dominated the tape alongside a strong spot rally mid-month which culminated in over $5.4bn traded during the week of March 12th alone! With this risk on sentiment from investors, we can’t wait to see where Q2 takes us.
Gold Coin Dominance
March has absolutely left traders astonished at the incessant amount of volatility and uncertainty throughout the month. Stablecoins depegged, banks failed, and bitcoin has powered through it all to touch new local highs before a slight retracement toward the end of last week. After a monstrous decline toward the beginning of the month, bitcoin is now more than 40% higher than the lows made on March 10th, the Friday before USDC dipped below $0.90. Silicon Valley Bank, amongst others, had faced a massive liquidity crisis and major outflows, as venture capitalists and angel investors alike frantically fled to twitter and email to encourage founders and start-ups to pull capital. For the first time in quite a while, bitcoin showed more relative strength in the options markets than ETH, with a flippening happening toward the end of the month as the macro narrative took hold and the decentralized ethos of cryptocurrency started to truly shine.
Bitcoin continues its dominance in the space with the ETH/BTC ratio touching local lows, and all eyes are on $30K as the upside breakout target. The ETH Shanghai upgrade is speculated to be taking place on the 12th of April, although both price action and interest in the options markets fails to manifest compared to BTC. Looking at March 1st, the volatility term structure across the board has noticeably jumped as the spot/vol correlation continues to remain strong. Multiple tests of 25K in February started as key levels of resistance and quickly faltered and failed. Both liquidations and heavy demand for spot stepped in shortly after the Fed turned on the liquidity tap to protect additional banks from falling after SVB to catapult BTC into the $27,000 levels where we currently stand today.
The crypto markets continue to be some of the most reflexive markets, as a complete reversal of skew - even in longer dated tenors - happened on the weekend of March 10th. Massively bearish blocks opened toward the end of the week ended up getting completely blown out as prices skyrocketed, and short-term buyers of weekly topside gamma ended up with massive profits as BTC rose 9% on the following Monday. Steeply backwardated term-structure seen in market panic ended up normalizing within two weeks, and from a volatility and flow perspective, large BTC blocks continue to paint the tape.
March Content Highlights
Unified Markets combines Paradigm’s most popular products, RFQ and Complex Order Books in a single user interface. This enables Paradigm users to build and manage auctions for any asset, instrument or strategy all from a single screen.
Tune in to our most recent TBP podcast episode as Chris Newhouse, a Trader from GSR, speaks with Joe Kruy and David Brickell on the current state of the crypto markets. We discuss staggering option volumes, dive into flows and market microstructure, and finish it all off with a detailed summary of the banking catastrophe and macro environment.
Our last trading structure article covered Calendar spreads, a way to trade volatility term structure. In this installment of the trading structure series, we take a deep dive into ratio spreads and how their implementation allows traders to take a view on volatility skew. We talk about the environments ratio spreads might flourish in, as well as give an overview on what volatility skew is and why someone might implement a ratio spread in their portfolios.
In the most recent chapter of The Macro Pulse, we cover a brief overview of the state of the current banking sector, talk more about some of the liquidity and balance sheet expansion that’s happened over the past few weeks, discuss the FOMC rate decision to close out the month, and provide some broader insight into how all of this impacts the current option flows and price forecasts for bitcoin.
The Mob Has Spoken
Thanks for taking the time to read our Monthly Brief. Q1 ended with quite a bang, and we are excited to see what else the market throws at crypto in Q2. We stand ready and waiting to serve our clients!"
The Paradigm Team 💜