QCP Weekend Brief – 10 Aug 24

BTC price is almost exactly where we started a week ago, hovering above 60k. Truly an unbelievable and swift recovery, after getting hammered to 49k lows on Monday which was the worst single-day drawdown we've seen in years.

Heading into a surprisingly tranquil weekend, we have two observations/thoughts to share:

1. There has been a fundamental shift in the liquidity profile of ETH relative to BTC. While BTC is becoming increasingly integrated into the mainstream macro capital markets, ETH is becoming increasingly sidelined. This development likely stems from the distinct lack of interest in the ETH spot ETFs relative to the BTC spot ETF.

BTC as digital gold is a compelling narrative to investors while ETH is lacking one. This liquidity shift was made painfully obvious on Monday when ETH plummeted 22% compared to BTC's 16%.

However, this is not necessarily negative for ETH price. As a more speculative and more volatile asset, the propensity for exponential price gains comes along with the potential for larger drawdowns.

Before the ETH spot ETF, the difference in implied volatility between BTC and ETH was closer to 5%. Right now, it has expanded towards 20% and could be even higher. Perhaps the strategy here is to sell BTC volatility and buy ETH volatility.

2. Bullishness in BTC is significant and structural. Throughout the week (and in spite of the crazy volatility), there was consistent demand for BTC calls expiring in 2025 with strikes closer to 100k. This is evidence of the digital gold narrative capturing the imagination of institutional investors.

Trade Idea:
After the leverage wash-out this week we are back on track towards a bullish year-end.

BTC Zero-Cost ERKO Seagull
Sell 50k Put to buy 75k Call with 120k Knock-out
Max Return: 236.3% p.a. or $45,000 per BTC if spot price is just below 120k level at expiry.
Expiry: 27Dec24
Spot ref 60,600 BTCUSD