Trading Crypto's Reflexive Markets and Mispriced Volatility | 1000x

Thu Jun 22 2023

Bitcoin Trading and Market Opportunities

Bitcoin is trading at 29,800 and both hosts are happy.
There are a lot of opportunities in the market.
Short interest was over a billion dollars on UST contracts when Bitcoin was below 40k.
Lifting August and September calls on BTC was recommended due to the high short interest.
Volatility is often the most mispriced post a large move, and it's more likely for Bitcoin to oscillate wildly after it's already done so than for it to begin doing so.
Volatility is still low, and puts are cheap if you want to bet against the market.
Options are often mispriced after large moves; they remain too high for too long after excitement in a market but become undervalued when people throw in the towel.
Markets move fast when there's a short squeeze.

Natural supply of sellers in the options market caused recent bout of selling
Institutional funds and retail not crossing spread led to vol depression
Insane amount of shorts in the market led to lifting
Markets trading weirdly prior to news dropping, providing opportunity to buy post FUD
SEC dropping final two lawsuits against Coinbase and Binance signaled confidence for some traders
Lawsuits against Coinbase and Binance were events that played out their hand, making further actions less meaningful
DOJ coming after Binance is almost baked into price, perp walk could lead to 3-6% selloff

Freezing customer assets temporarily could cause liquidity issues and terrifying price movements.
Long gamma traders may want to lighten up on some deltas in case of asset freezes.
Probability analyses are useful for making trading decisions.
GBTC was a great trade due to its positive convexity and discount formula.
ETH is less attractive than BTC for an ETF due to concerns around it being a security and liquidity issues.
DCG's managers may not be purely economically rational, which could affect the discount of GBTC.
Even if GBTC gets fire sold down to a discount of minus 90%, Grayscale still collects the same fees.

BlackRock's filing for an ETF may not necessarily compete with GBTC, as they can still collect the same fees even if GBTC is sold at a discount.
Grayscale could buy their own shares back at a massive discount and convert to an ETF or offer redemptions and earn 20 years worth of fees in one fell swoop.
There is some risk involved in this strategy, as it opens up BlackRock to class action lawsuits.
The probability of BlackRock's Bitcoin ETF getting approved is high considering the economic cost of producing it.
Once approved, there will be many people trying to sell a Bitcoin ETF who historically have not cared much about Bitcoin.
Long-dated wingy options are a good trade right now because once the ETF gets approved, there may be a stampede into the asset class.
ETH is under pressure right now but may shift at some point. A level of 0.5 to 0.55 is good for scooping up ETH for long-term investment.

Institutions have limited options to get long on Bitcoin.
Buying spot is not capital efficient.
Commodity futures and interest rate futures are more capital efficient but still not ideal.
GBTC is a volatile option with uncertain future prospects.
A BlackRock ETF would be the gold standard for getting long on Bitcoin in a capital efficient way.
Altcoins are currently experiencing a dead period, with most being useless and unattractive to institutions and retail investors alike.
There may be specific altcoins that outperform, such as Stax, Arbitrum, Optimism, or Maddock's NFT drop integrated into Fortnite.
Overall, buying alts as a BTC rotation play is unlikely to yield good results until either BTC reaches 35-40 or XRP is declared not a security.

Buying a market cap weighted basket of altcoins is not a good idea as some coins are irrelevant despite their high market cap.
If regulators become friendlier to the idea, tokens that align incentives better and more easily than start-up equity agreements could be issued.
The SEC coming after crypto is not an indictment of crypto. Altcoins can just be registered as securities.
Crypto will bifurcate into regulated KYC institutional-type crypto and offshore crazy underground market of crypto that's probably going to still exist.
There will be bridges between the two types of crypto, but those bridges will be heavily regulated with lower take rates.
Certain chains will be popular in markets that are less friendly to American regulatory oversight and other markets which are very compliant and you'll have very regulated bridges in between the two with lower take rates.
Exchange landscape may look different in 10 years as a result of this sort of regulatory picture. There's room for a new player or two.

There is room for a new player in the cryptocurrency market.
Regulatory action is coming out now, which may be related to the rise of Bitcoin.
The more Bitcoin goes up, the more people believe that the ETF will go through and buy Bitcoin.
Equity markets have gone down while Bitcoin has gone up, but there's still room for catching up.
Bullish data points suggest that there's general bullishness in the market and inflation is under control, setting up a nice environment for Bitcoin to tag 40k.
It's better to sell on the headline that ETF has approved and buy back at a lower price.
Crypto being a small market makes it easier to trade ahead of events that would normally chop you up.
GBTC didn't have its crazy move until Monday after BlackRock filing was announced. The rumor unsubstantiated thus far, but on crypto news sites and crypto Twitter, that fidelity was going to buy grayscale or looking to buy grayscale sent GBTC soaring.
Miners are pivoting towards AI. Hut 8 signed a contract to provide HPC on June 14th and then two days later proceeded to rocket.

Bitcoin miners are repurposing their facilities to provide HPC due to high demand.
This generates more revenue and makes mining companies healthier.
Miners will get liquidated less often as they become better and more robust businesses.
Crypto has provided a series of infrastructure plays that are relevant outside of just crypto.
Tradfi-based narratives seem to take a while to percolate in a way that crypto doesn't.
There is an opportunity for crypto-focused investors to trade tradfi-linked assets like trusts, Grayscale, BlackRock, mining stocks, Coinbase stock, etc.
Crypto is risky. Tokens are risky. Crypto-linked securities are risky. So be careful.