Prizmabet

Ether Options Market Makers Are ‘Long Gamma’ at $1.8K

Traders said market makers are holding options with a $1,800 strike price and are likely to influence prices as they try to keep their portfolios direction-neutral.

Ether (ETH), the second largest cryptocurrency by market value, has been largely locked in a narrow price range around $1,800 since mid-May and is unlikely to move much in the short term, market makers’ positions in the options market indicate.

That’s because the market makers, the dealers tasked with providing liquidity to an exchange’s order book and who are always on the opposite side of investors’ bets, are forced to hedge their options exposure through offsetting positions in the spot or futures market in order to run a market-neutral, or delta-neutral, portfolio. Their so-called delta hedging actions as the underlying asset moves can influence the spot market price and are known to arrest price swings.

According to Jeff Anderson, a senior trader at STS Digital, market makers are currently stuffed with what’s known as long gamma positions in the $1,800 strike price ether options due to expire on June 30. Market makers are said to be long gamma at a particular price level when they have bought options at that level.

“So, as we go higher, market makers will likely sell ETH. On the flip side, market makers would buy the cryptocurrency on price dips,” Anderson told CoinDesk. “So, the spot price could stay close to $1,800.”

Options are contracts that give the purchaser the right, but not the obligation, to trade the underlying asset at a predetermined price on or before a specific date. A call option gives the right to buy while put the put option offers the right to sell. Being long gamma means holding a buy position in call or put options.

The long gamma positioning forces market makers to snap up the underlying asset when the price falls below the said level to keep the overall portfolio market-neutral. Similarly, they sell the asset when the price rallies. Gamma refers to the rate of change in options delta per one-point move in the underlying asset.

Griffin Ardern, a volatility trader from crypto asset management firm Blofin, said the delta hedging by market makers could strongly influence the spot price.

“Considering the lack of enthusiasm among futures and perpetual futures traders right now, the impact of market maker hedging could be significant,” Ardern said.

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Falling energy prices boost EU’s growth outlook, Commission says

GDP in the EU is now forecast to reach 1.0% in 2023 and 1.7% in 2024, up from a previous forecast of 0.8% and 1.6%.

The European economy continues to show resilience in a challenging global context and is now expected to grow more than expected over the coming two years.

This is due to lower energy prices, abating supply constraints and a strong labour market that supported moderate growth in the first quarter of 2023, dispelling once and for all fears of a recession.

These were the main findings from the European Commission, which presented its Spring Forecast in Brussels on Monday.

This better-than-expected start to the year lifts the growth outlook for the EU economy to 1.0% in 2023 (up from 0.8% in the Winter Interim Forecast) and 1.7% in 2024 (1.6% in the winter), according to the data.

Upward revisions for the euro area are of a similar magnitude, with GDP growth now expected at 1.1% and 1.6% in 2023 and 2024 respectively.

Ireland is expected to post the highest growth of the bloc’s 27 member states with 5.5% this year and 5.0% in 2024. Sweden and Estonia are however seen contracting this year with GDPs of -0.5% and -0.4% respectively. For the Baltic country, 2023 should therefore be the second year in a row with negative growth but it is then forecast to rebound strongly and grow by 3.1% in 2024.

The bloc’s economic powerhouse, Germany, should meanwhile post anemic growth this year of just 0.2%, followed by 1.4% next year. France should fare a bit better this year — 0.7% — and double that the following year.

But it’s not all good news. On the back of persisting core price pressures, inflation has also been revised upwards compared to the winter, and is now forecast to reach 6.7% in 2023 and 3.1% in 2024 with lower forecast for the euro area.

Hungary will be the most impacted, with inflation seen reaching 16.4% this year, followed by Czechia and Poland with readings close to 12%.

Luxembourg, Belgium and Spain should have the lowest inflation readings — between 3% and 4% — this year.

“The EU economy is holding up remarkably well in the face of Russia’s aggression against Ukraine, leading to an upgrade in today’s growth forecast for 2023”, said Valdis Dombrovskis, Executive Commission Vice-President in a statement.

“With energy prices clearly down, governments should be able to phase out support measures and reduce their debt burdens.”

Markedly lower energy prices are working their way through the economy, reducing firms’ production costs. Consumers are also seeing their energy bills fall, although private consumption is set to remain subdued as wage growth lags inflation.

After peaking in 2022, headline inflation continued to decline in the first quarter of 2023 amid a sharp deceleration of energy prices. Core inflation (headline inflation excluding energy and unprocessed food) is, however, proving more persistent.

In March it reached a historic high of 7.6%, but it is projected to decline gradually over the forecast horizon as profit margins absorb higher wage pressures and financing conditions tighten.

“Inflation has proved stickier than expected but it is forecast to decline gradually over the remainder of 2023 and in 2024. And the improvement in public finances is set to continue as energy support measures are progressively withdrawn”, EU Economy Commissioner Paolo Gentiloni told reporters.

The Commission publishes two comprehensive forecasts (spring and autumn) and two interim forecasts (winter and summer) each year. The interim forecasts cover annual and quarterly GDP and inflation for the current and following year for all Member States, as well as EU and euro area aggregates.

The European Commission’s Summer 2023 Economic Forecast will update GDP and inflation projections and is expected to be presented in July 2023.

Tether Says It Will Buy Bitcoin for Stablecoin Reserves Using Realized Profits #prizmabet

The company, which issues the $82 billion USDT stablecoin, reported $1.48 billion of net profits in 2023 Q1 and revealed $1.5 billion in BTC holdings.

Stablecoin issuer Tether will regularly buy bitcoin (BTC) for its stablecoin reserves using a portion of its profits starting this month as part of a new investment strategy focused on the largest cryptocurrency by market capitalization, the firm announced on Wednesday.

Tether said it will allocate up to about 15% of the realized profits from investments – excluding any unrealized price appreciation of its reserve assets – to purchase BTC and will add the tokens to the reserve surplus.

The company will custody the BTC stash on its own, without using any third-party custodians, according to the statement.

The development comes after Tether, the company behind the largest stablecoin on the market, the $82 billion USDT, revealed last week that it holds $1.5 billion of BTC and $3.4 billion of gold among the assets that backs the value of USDT and its smaller stablecoins. Some 85% of the reserves are held in cash and cash-like assets such as U.S. Treasury bonds, according to its 2023 Q1 attestation.

Stablecoins, now a $131 billion asset class, have become a crucial building block of the cryptocurrency infrastructure, facilitating trading and transactions between government-issued fiat money and digital tokens by keeping their price anchored to an external asset, usually to the U.S. dollar.

BTC investments

The firm’s BTC purchase campaign aims to strengthen and diversify the stablecoin reserves, while capitalizing on its price appreciation as an investment, the press release said.

“Bitcoin has continually proven its resilience and has emerged as a long-term store of value with substantial growth potential,” Paolo Ardoino, chief technology officer of Tether, said in a statement. “Our investment in bitcoin is not only a way to enhance the performance of our portfolio, but it is also a method of aligning ourselves with a transformative technology.”

The company said it will exclusively utilize realized profits from its investment operations for buying BTC, disregarding unrealized capital gains. It means that the firm considers “only the tangible gains from its operations,” consisting of the difference between the purchase price and net proceeds from an asset sale or, in case of maturing assets such as Treasury bills, between the purchase price and the reimbursed amount, per the statement.

Tether said that it also focuses on developing communication systems, energy and bitcoin mining infrastructure among its smaller investments.

For years, Tether has been criticized within the crypto industry for its lack of transparency about its reserves and controversial investment decisions.

However, the firm’s flagship token USDT emerged as a safe haven in March as the U.S. regional banking crisis hit Circle’s USDC, the second largest stablecoin. The sudden implosion of Silicon Valley Bank (SVB) left a part of USDC’s cash reserves frozen at the bank over a weekend, and several stablecoins lost their dollar peg temporarily in a knock-on effect.

Tether came out of the calamity as a clear winner by maintaining its price stability due to its perceived disconnection from U.S-based banks, being incorporated in the British Virgin Islands and Hong Kong. USDT’s circulation has grown 24% this year while most rivals have suffered significant outflows.

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Edited by Parikshit Mishra.

Out of Compute North’s Bankruptcy #prizmabet Rises a 300MW Bitcoin Miner With a Novel Energy Offering

Born out of the ashes of the Compute North bankruptcy, the new venture aims to give clients control over their energy strategy.

A group of energy and bitcoin mining veterans are developing a 300-megawatt (MW) hosting site in Corpus Christi, Texas, that will give customers an unusual option on how they manage their electricity costs.

The site will be connected to the grid and will be co-located with an additional 300 MW battery storage facility. Customers will be able to form their own power management strategy and decide if and how they participate in demand response programs.

The firm building the site in Texas is called Saxet Infrastructure Group. The all-in hosting fee won’t be fixed. Rather, Saxet will pass variable energy costs onto its customers and charge a fixed management fee that will be lower than that of many of its competitors, the firm said.

Electricity is usually miners’ biggest operating expense. Many hosting contracts that were signed during the 2021 bull market had a fixed price, which included an energy and management fee. Those fees became unsustainable for hosting firms during the energy crisis of 2022.

“In a fixed-price hosting market, as we’ve seen the market shake out, one party usually ends up losing,” either the customer is signing up for a fixed price that turns out to be too high or the price is too low, and so the infrastructure partner hosting partner is at risk, said Ro Shirole, who left retail-facing hosting firm Compass Mining to join Saxet as its chief commercial officer.

Crypto winter casualty

The site in Corpus Christi that Saxet is building also took a hit from this common hosting conflict.

Compute North, which had been one of the largest players in the hosting business, filed for Chapter 11 bankruptcy in September 2022. A declining bitcoin (BTC) price and the company’s relationship with its biggest lender, Generate Capital, which ended up taking over Compute North’s stake in another two of its sites, were partly to blame.

But another problem was that Compute North’s services agreements didn’t allow it to pass through energy costs. The company could only turn off its customers’ machines when energy prices exceeded a certain level. “While this mechanism helps to manage expenses during a period of high power costs, it is not an effective strategy for addressing long-term energy price increases,” Compute North Chief Financial Officer Harold Coulby said in a filing with the U.S. Bankruptcy Court in southern Texas.

Two of Saxet Infrastructure’s executives, CEO Steve Quisenberry and Chief Operating Officer Matt Held, were also partners at Bootstrap Energy, a company that Compute North had hired to develop the Corpus Christi site in March 2022. Bootstrap Energy also owns the land that the site is on. Shirole left Compute North in December 2021 and has filed an employment discrimination lawsuit against the firm.

Compute North stopped paying the development firm in the summer of 2022, and as of the bankruptcy date, it hadn’t made $14.9 million in payments. The bankruptcy court rejected the development contract, and so Bootstrap Energy was back on the saddle to develop the site.

Location, location, location

The site’s location provides several advantages, Held said. The relatively moderate temperature in the south of Texas, near the sea, is much cooler than other parts of Texas, including West Texas where a lot of miners have flocked. It is also situated at lower altitude, making for denser air. The lower temperatures and more humid environment helps reduce the costs of cooling machines.

The area is also home to almost 7 gigawatts of wind power generation, with winds not dying down in the afternoon, as it does in West Texas, Held said. Demand for electricity in the area is fairly stable because it is home to industrial facilities that require stable amounts of power throughout the day and few population centers, he said.

Looking ahead

The site is still under construction and the Saxet team is now signing contracts with tenants. Saxet has secured all the capital needed for the construction of the site from a New York multibillion-dollar private-equity firm and a private investment group. The funding will be released once Saxet has reached a minimum scale of customers, Quisenberry said.

The new firm expects the full 300 MW of hosting capacity to be up and running by the end of the year.

Saxet is taking contracts only for larger than 25 MW from institutional clients in order to be able to execute its tailor-made power management strategies, Shirole said.

“Quite a few of the large-scale miners that we’ve walked through the structure on this, truly view this as the future for at-scale mining,” Shirole said.

The strategy, however, can also change over time as both the market and regulations change, and customers will be reviewing their power strategies on a regular basis, the Saxet executives noted.

“The full transparency of energy pricing with our clients is the key to what we’re doing,” and for the industry in general, Quisenberry said.

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As Crypto Grows, so Does CoinDesk’s Commitment to Keeping Pace #prizmabet

A new CoinDesk tool called the Bitcoin Trend Indicator can help traders spot where BTC is headed.

Proximity to information and access to new tools is one of the things that I value most about being at CoinDesk. Each day there’s cutting-edge access to news and early looks at tools that we as a firm are looking to bring to the marketplace.

The new Bitcoin Trend Indicator (BTI) from CoinDesk Indices is useful for investors, specifically those looking to employ systematic, non-discretionary strategies. Successful and timely identification of trends in price movements is paramount to any active investing strategy – and that’s something BTI appears to deliver.

While this new tool might not be so useful for investors engaging in a long-term, buy-and-hold strategy, for those with a tactical bent – a penchant for entering and exiting positions quickly – it’s got significant value. It should work well in tandem with watching seasonality, which is particularly important following the crypto winter markets endured for much of 2022.

You’re reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

As a practitioner of technical analysis, I view visual identification as a tried-and-true method of identifying trends. You pull up a chart, observe the extent to which prices are moving and apply trend lines to provide a graphical outline of those trends. They can effectively be used to identify and project the direction of an asset’s price movement, with breaks below or extensions above being instances worth noting.

Candidly, a degree of subjectivity exists when drawing trendlines. Where I draw my trendline may be completely different from where a colleague draws one. Methodology can vary as well. Where one may connect trend lines at an asset’s closing price, another may draw the trendline at its high or low price for the day.

This is not meant to call into question the practice itself, but to highlight potential variations in the analysis of identical data. From my vantage point, it’s no less subjective in nature than picking one valuation multiple over another when performing fundamental analysis.

Historical price data can be used to identify seasonality and trends as well. Past pricing data can be separated into buckets related to time, and used to identify patterns.

Investors can also narrow the time period of evaluation to a more recent time frame to evaluate the extent to which performance may have shifted.

Of note in 2023 is the somewhat sporadic monthly returns, with underperformance in February and April, surrounded by outperformance in January and March. The lack of a discernible trend in instances like this highlights the need for objective, quantitative-based tools to evaluate trends. As crypto matures and the base of crypto investors widens, so, too, will the need for tools that strip the emotion out of allocation decisions. CoinDesk’s Bitcoin Trend Indicator can do that.

In a nutshell, the BTI identifies the “presence, direction and strength of momentum in the price of bitcoin.” It is calculated daily at 4 p.m. ET (20:00 UTC at this time of year), using prices from the CoinDesk Bitcoin Price Index (XBX), our BTC benchmark.

The five BTI signals, (color coded for clarity from red to green) are significant downtrend, downtrend, neutral, uptrend and significant uptrend.

A look into its methodology shows that a series of moving average crossovers are utilized within four distinct crossover windows of varying lengths. Exponential weighting is used to fully capture the importance of more recent prices.

A backtest of the BTI shows it identified an uptrend in October 2020, before BTC jumped to $40,000 from $10,000. From a risk management vantage point, it also identified movement to “neutral” from “uptrend” in May and November 2021, before substantial drawdowns.

A missed signal can be seen in late March 2022, when the BTI signaled an uptrend before a 59% drop through June. It’s also worth noting, however, that while the uptrend was identified on March 28, the BTI identified a neutral signal on April 8 and a downtrend signal on April 10.

There is no Holy Grail indicator, so I expect other false signals. I find comfort seeing that the BTI has demonstrated an ability to quickly adapt to a changing landscape however.

I would encourage all who are reading this to give the BTI a look, particularly those who are looking to build systematic, non-discretionary strategies.

Give it a try, poke holes in it, completely ignore any bias that I may have towards it and see how it fits into your own investment process. Feel free to let us know how you feel as well, whether positively or negatively. Feedback can be the lifeblood of improved processes.

Our goal at CoinDesk is to constantly provide products and services that add value to your own.

– Glenn C. Williams Jr., CMT

Takeaways

From CoinDesk Deputy Editor-in-Chief Nick Baker, here’s some news worth reading:

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To hear more analysis, click here for CoinDesk’s “Markets Daily Crypto Roundup” podcast.

Edited by Nick Baker.