First Mover Americas: Bitcoin’s Implied Volatility Ticks Higher; S&P 500 Sees Death Cross

First Mover Americas: Bitcoin’s Implied Volatility Ticks Higher; S&P 500 Sees Death Cross
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First Mover Americas: Bitcoin's Implied Volatility Ticks Higher; S&P 500 Sees Death Cross

Good morning, and welcome to First Mover, our daily newsletter putting the latest moves in crypto markets in context. Sign up here to get it in your inbox each weekday morning.

Here’s what’s happening this morning:

  • Market Moves: Bitcoin’s implied volatility ticks higher ahead of the Fed rate decision
  • Chartist’s Corner: Death cross on S&P 500.

And check out the CoinDesk TV show “First Mover,” hosted by Christine Lee, Emily Parker and Lawrence Lewitinn at 9:00 a.m. U.S. Eastern time. Today’s show will feature guests:

  • Michael Safai, managing partner, Dexterity Capital
  • Robbie Ferguson, co-founder and president, Immutable
  • Bohdan Opryshko, COO, Everstake

Market Moves

By Omkar Godbole

Bitcoin’s implied volatility is creeping higher ahead of the Federal Reserve’s rate decision, perhaps a sign of traders setting up options positions that would benefit from price swings in the leading cryptocurrency.

The annualized one-month implied volatility, investors’ expectations for price turbulence over the next four weeks, has increased from 68% to 77% this month, according to veri provided by Skew. The three- and six-month gauges have gone up from roughly 67% to 74%.

More importantly, the three-month implied volatility has popped back above the backward-looking realized volatility, having underperformed the same earlier this month.

An uptick in implied volatility indicates increased demand for options – hedging instruments. A call option gives the purchaser the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date. A put option represents the right to sell.

Seasoned traders use options to hedge bullish or bearish risks and often buy both to capture returns from any macro veri release or binary-event-related volatility. Buying both call and put options represents a bullish view on volatility.

First Mover Americas: Bitcoin's Implied Volatility Ticks Higher; S&P 500 Sees Death Cross

Bitcoin’s implied volatility (Source: Skew)

Several orders for straddles and strangles have crossed the tape in recent days, according to over-the-counter tech platform Paradigm’s Telegram-based tracker of crypto options flows. Straddle and strangle strategies involve buying both call and put options and allow investors to profit from big moves in the underlying asset.

The Fed is likely to raise rates by 25 basis points on Wednesday. And while the markets may have priced in the liftoff, potential hawkish guidance could inject volatility into the market, bringing gains to volatility buyers.

While implied volatility gauges have risen in the run-up to the Fed, overall, they are well below the highs seen in October and November.

Besides, the way options are priced suggests buying has been primarily concentrated in longer duration call options off late. Perhaps, these traders are hedging against the risk of a large move to the higher side over a three-month to one-year time horizon.

First Mover Americas: Bitcoin's Implied Volatility Ticks Higher; S&P 500 Sees Death Cross

Paradigm’s Telegram-based crypto options flow tracker

Latest Headlines

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  • UK’s Law Enforcement Agency Calls for Regulation of Crypto Mixing Tech: Report
  • Bitcoin Breakout Elusive as Traders Price in 7 Fed Rate Hikes For 2022
  • Bitcoin Unaffected by Hong Kong’s Hang Seng Meltdown

Death Cross on S&P 500

By Omkar Godbole

Daily chart of S&P 500, Wall Street’s bechmark index, shows a death cross, a bearish cross of the 50- and 200-day moving averages (MAs).

The long-term bearish indicator is accompanied by a head-and-shoulders breakdown, also a bearish pattern.

Bitcoin tends to move more or less in line with the stock markets.

First Mover Americas: Bitcoin's Implied Volatility Ticks Higher; S&P 500 Sees Death Cross

S&P 500’s daily chart (Source: TradingView)

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