QCP Weekend Brief - 13 Apr 24

- The downside skew in the ETH risk reversal that we highlighted on Friday has proven to be an accurate early downside indicator.
- Likely because of its sensitivity to crypto market anxiety as speculators who are long Alts tend to hedge using ETH puts.
- Overnight, the macro trigger was the threat of Iranian retaliation to Israel which caused a sell-off across all risk assets.
- BTC traded to 65.1k lows, ETH to 3100 and Alts sold off around 20-30%.
- The market was caught off guard by this move with perp funding driven to negative to (over -40%), the deepest it's been this year.
- The negative perp funding has also crushed the forward curve with the front-end now below 10%.
- With this move, BTC is right back in the middle of a tightening range between 64k and 73k.

Trade Idea:

Even though we are about a week out from BTC halving, BTC might struggle to break out of this defined range in the short-term. We recommend the CFCC (Conditional Fixed Coupon Convertible).
Indicative pricing below (spot ref: 68k):

1. If you are long BTC, do a call-side CFCC

Coupon Rate: 60% p.a.
Maturity: 31MAY24
Coupon Level: 64,000
Strike: 73,000
Protection Level: 80,000

How does it work?
Every Friday, as long as spot price is above 64k. you will get a yield of 60%pa. At expiry, only if spot price is above 80k, BTC will be converted to USD at 73k strike. If spot price is below 80k, 100% of the BTC principal is returned.

2. If you are deploying USD, do a put-side CFCC

Coupon Rate: 66% p.a.
Maturity: 31MAY24
Coupon Level: 73,000
Strike: 64,000
Protection Level: 60,000

How does it work?
Every Friday, as long as spot price is below 73k. you will get a yield of 66%pa. At expiry, only if spot price is below 60k, USD will be converted to BTC at 64k strike. If spot price is above 60k, 100% of the USD principal is returned.