QCP Weekend Brief – 27 Jul 24

Spot ETH ETF
The first week of spot ETH ETF trading looked like BTC spot ETF launch déjà vu all over again, with ETH retracing from 3563 highs to 3086 lows.

Why the repeat?
1. The hefty 2.5% fee by Grayscale once again continues to drive the outflow. To date, we have had 178m USD net outflows from the 8 ETFs with Grayscale accounting for 1.16b worth in just 4 days.

2. Despite Grayscale introducing a Mini ETF (ETH) with the most competitive fee of 0.15%, net outflows continue to dominate with only 10% of the initial ETHE being converted to ETH.

3. ⁠Crypto market pulling the classic ‘buy the hype sell the news’. Over positioning into an event and rushing out when there’s a lack of positive reaction.

What's preventing a post-ETF rally?
1. Unlike BTC’s digital gold tagline, ETH can be quite an abstract concept to the TradFi world and requires time for further uptake.

2. ⁠Investors are less incentivized to buy spot ETH ETFs without the staking feature.

Options Market
Ironically, BTC stole the limelight in the options market this week instead of ETH with all eyes on Trump’s speech Bitcoin 2024 this Sunday.

After experiencing the “Trump Effect” last weekend, the options market is expecting huge fireworks with implied vols for 28-Jul being priced at 85 vols, almost double the realized vols.

The options desk saw huge topside positioning by big funds for 2-Aug expiry throughout the week, in anticipation of a breakout move by Trump as well as dovish FOMC next Tuesday.

Trade Ideas
a) Bullish - The Trump Card
Make 701.9% p.a. returns if BTC expires at 72k next Friday (2-Aug).

Expiry: 2 Aug 24
Sell 1x BTC 65k Put
Buy 3.75x BTC 70/72/74k Call Fly
Cost: Zero
Max Return: 701.9% p.a. or $7,500 USD per BTC if spot expires AT 72k
Downside: At expiry, if spot is below 65,000, you buy BTC at 65,000

b) Bearish - Sell The News
Make 3x returns if BTC expires between 65k and 63k

Expiry: 2 Aug 24
Range: 65k to 63k
Payout: 3x (of premiums spent, if BTC expires within the range)

(Spot Ref: 68,000)