Cycle Capital Crypto Commentary: The FIT21 bill is one step closer to becoming law. What are the expectations of the derivatives market?

Preface

On May 23, 2024, the U.S. House of Representatives passed the Financial Innovation and Technology Act for the 21st Century (FIT21) by a vote of 279 to 136. , the legislation, largely pushed by House Republicans, would establish a system to regulate the U.S. crypto market, set out consumer protection measures, and designate the Commodity Futures Trading Commission (CFTC) as the primary regulator for digital assets as well as the regulator of non-securities spot markets. . House Democrats came out strong. The passage of this crypto market structure bill marks the industry’s most significant legislative achievement in Congress.

After the House of Representatives votes to pass the bill, it will move on to the Senate, where it will be decided by presidential action whether it can become law.

This bill is particularly important for non-Bitcoin cryptocurrencies that are affected by the uncertain regulatory environment. It is expected to reduce the legal uncertainty and regulatory risks currently faced by many cryptocurrencies. Whether this eye-catching bill can finally become law and whether the ETH ETF can be approved as soon as possible are also important determinants of whether the altcoin season can start. This article studies and summarizes the market sentiment and direction given by ETH in the derivatives market from the perspective of CME position data, option market term structure and important MM hedging points.

Main point

· Looking at CME’s holdings, compared with the growth of CME’s holdings before the BTC ETF was approved, it increased from 71,600 in October 2023 to after approval ( The high of 138,200 BTC on January 12, 2024 nearly doubled. Then the positive effects of BTC were realized, and a 20-day adjustment was carried out, with a profit stop of 13,000 BTC to 125,200 BTC; after February 4, another After a major rise, it reached the current CME position high of 176,100 pieces on March 22.

· From the perspective of CME’s positions, it increased from 225,900 coins on May 20 to 312,100 coins on May 23. The significant increase in positions occurred in a short time span, which also shows that the previous institutional control Betting on the ETH ETF is not active, and there are not a large number of long bets in advance. Currently, ETH CME positions are still on an upward trend.

· ETH has selling pressure brought about by option market maker hedging near $4,000, while a large amount of doomsday option hedging buying pressure near $3,750 has been touched, and the main hedging support has now moved down to around 3,500. From a hedging perspective, the ETH fluctuation range exists around 3500–4000, but if more external demand or supply occurs, it will break through this hedging range.

· The term structure of the options market and the forward rate of ETH/BTC still indicate that BTC has stronger bullish sentiment in the longer term.

Data source: Coinglass

Looking at the options market, first of all, in terms of term structure, BTC shows an overall rising structure, and the implied volatility increases with the increase in expiration time, which means that the market expects far-end volatility to increase. On the contrary, for ETH, the market is very satisfied with the recent market fluctuations, and the IV gradually falls in the long term. This means that BTC is still the market’s long-term trading target, but the recent volatility of ETH is exciting.

Data source: Signalplus

From the option gamma level data of various periods, ETH has at least 5,000 ETH hedging selling pressure near 4,000, and A large amount of doomsday option hedging buying pressure near $3,750 has been touched, and the main hedging support has now moved down to around 3,500. Therefore, from a hedging perspective, the ETH fluctuation range exists around 3500–4000, but if more external demand or supply occurs, this hedging range will be exceeded.

2024.5.23 1:00 EST

2024.5.23美东时间14:00

Gamma is a measure of Delta (the option price relative to the underlying An indicator of the rate of change of an asset's price (sensitivity to changes in asset prices).

For the seller, when the price of the underlying asset rises, the delta of the call option sold will become closer to -1 (for example, if the delta is -0.3 at the beginning, it may become -0.6). A negative gamma means that as the price of the underlying asset increases, the rate of change of delta will slow down. This increases risk for sellers as they will need to hedge with more buys during rising market conditions.

But when the overall market is a net buyer, that is, when there are more positions with positive gamma, hedging is mainly based on selling high and buying low, that is, there is more demand for selling spot for hedging at the position of 4000. .

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