QCP Weekend Brief – 24 Aug 24

- BTC finally got the recovery that we've been waiting for. It seems Powell's speech at Jackson Hole was the catalyst it needed to breakout of the 58k-62k range.

- Rate cuts are confirmed for Sep but there was no indication on how much, so August Payrolls will be critical. A 25bp cut is likely to be bullish, while a 50bp cut could indicate the Fed is taking acute action to prevent the economy from falling flat.

- Last night's rally was mostly spot driven as funding continues to remain flat. However, we should expect an increase in leverage long positions if the 62k support holds and as we approach the end of summer holidays.

- On the options desk, we saw increased topside positioning. Around 600x of Monday 62.5k-63k Calls, which are now in-the-money, were bought just before Powell's speech. Even on the backend, bulls continue to pile on to their long bets in Dec and Mar (80k to 85k strikes).

So where do we go from here?

- BTC is back comfortably in the familiar 61k to 70k range, selling supply is slowly depleting and spot ETF saw net inflows in 10 of the last 12 days. Similar to last night, it does seem crypto is looking for a narrative to breakout of this multi-month bullish flag.

- Despite the significance of next week's Nvidia earnings and even the September rate cut, we believe spot will continue to chop around this range until Q4. We maintain the view that the US elections accompanied with bullish seasonality could be the catalyst for all-time-highs.

Trade Ideas
BTC ACCUMULATOR
If you're like us and think BTC continues to trade around this 61k-70k range before the big breakout heading into the US elections (5 Nov), you can accumulate BTC spot at 9.1% discount (58,200) every week as long as spot is below 70,000.

Maturity: 1NOV24 (10 weeks)
Strike: 58,200 (-9.1%)
Upper Barrier: 70,000 (+9.4%)
Observation Frequency: Weekly
Spot Ref: 64,000

PRINCIPAL PROTECTED BTC RANGE ACCRUAL
With Basis still below 10% pa, generate 17% pa yield while BTC continues to trade around this 61k-70k range.

Coupon Rate: 17% pa in USD if BTC/USD fixes at-or-within the range 61k to 70k, 0% otherwise
Maturity: 8NOV24
Coupon Frequency: Weekly from 30AUG24
Full redemption 100% in USDC at maturity
Spot Ref: 64,000

QCP Asia Colour – 22 Aug 2024

Overnight, the downward revision of U.S. non-farm payrolls highlighted a weaker labor market, sparking concerns that the Fed might delay rate cuts, triggering a selloff.

These worries eased after the July FOMC minutes revealed some policymakers were open to rate cuts, signaling a more dovish stance balancing inflation and employment goals.

The dovish tone lifted risk assets, pushing BTC above $61,800, fueled by strong buying on Coinbase until 4 a.m. SGT. Aggressive bids on Coinbase (indicating U.S. onshore demand) have been a good signal for short-term trends.

Attention now turns to Fed Chair Powell’s Jackson Hole speech tomorrow for more rate-cut signals.

Trade Idea
With markets betting heavily on rate cuts, unexpected economic data can have a significant impact. We favor principal-protected products capturing topside gains.

Principal Protected BTC Topside Sharkfin
Maturity: 27DEC24
Strike: 70,000 BTCUSD
Barrier: 88,000 BTCUSD
Cost: Zero
Max Potential Payout: 73.90% p.a.

Spot Ref: 61,350 BTCUSD

QCP Asia Colour – 21 Aug 2024

Wall street is abuzz with rumours of a downward revision to payroll growth by at least 600k. This would indicate that the US job market was not as robust as the market expected in the past year.

The question now is whether the Fed has been behind the curve. The Fed has delayed rate cuts due to a stronger-than-expected job market and robust economy.

We expect Powell to address this issue during the annual Jackson Hole event. However, we believe Powell will not commit to a decision given there is another month until the Fed's Sep meeting.

A large downward revision, or an especially dovish Powell, could potentially reverse the 2-week equity rally and push BTC and ETH below support levels.

Regardless of the revision, the Fed seems poised to cut in September. The market is currently pricing in 3.7 cuts in 2024, and 4.5 cuts in 2025.

Trade Idea
Banks have already started to adjust their Fixed Deposit rates lower based on expectations of a rate cut cycle.

12-mth USD Fixed Deposits are paying 3.5 - 4.0% p.a. For the same tenor, you can lock in 9.5% p.a. in crypto cash and carry. This seems particularly attractive, especially if the Fed decides to embark on a much more aggressive cutting cycle.

```

| index | Basis | AnnRate(%) | Tenor |
|:--------|--------:|-------------:|--------:|
| 28MAR25 | 3333.18 | 9.39 | 219 |
| 27JUN25 | 4776.89 | 9.51 | 310 |
```

QCP Weekend Summary – 17 Aug 24
+ Introduction of our latest VMI (Volatility Momentum Indicator)

1. Improving macro sentiment
   Slowing U.S. inflation boosted market confidence, sending equities back towards all-time-highs. Continued rate cuts by major central banks like RBNZ reinforce the wave of global monetary easing.

2. Fears of a selling regime by the U.S. Government
   The U.S. government transferred 10,000 BTC (around $591 million) linked to the Silk Road to a Coinbase wallet. Although there is no confirmation of selling, the market is still wary of the remaining 203.239K BTC and other crypto assets that remain in the wallet.

3. Trump crypto catalyst?
   The market was disappointed by the stark absence of a crypto discussion in the 2-hour long interview of Donald Trump by Elon Musk.

Our view:
We remain constructive and bullish into year-end. One particularly encouraging factor is the market's resilience to various 'supply-shock' headlines this week for both BTC and ETH. The market even rallied on the back of Jump's un-staking and selling of ETH this round.

Introducing QCP's Volatility Momentum Indicator (VMI)

Navigate market uncertainty and capture upside potential with our Volatility Momentum Indicator (VMI). Designed to help investors transform market fluctuations into profitable opportunities.

What is the VMI?
The VMI is an in-house signal used to predict heightened volatility regimes where sustained positive volatility shocks are expected over a period of time. These shocks are typically correlated with fast trending moves in the underlying spot asset.

Applying the VMI signal on our principal-protected UPS strategy this year has yielded an exceptional return of 33% p.a. with zero downside.

Stay tuned for our upcoming Q4 Quarterly, where we will delve deeper into the VMI, showcasing its effectiveness through sample portfolio returns and analysis.

Onboarded QCP clients can inquire about the VMI or sign up for alerts through their dedicated trading channel.

QCP Asia Market Color - August 15, 2024

- The highly anticipated US CPI print came in line with expectations. The market is now pricing in 62.5% for 25bps cut compared to 47.5% before CPI announcement.

- The softer CPI numbers resulted in an immediate knee jerk reaction in equities and crypto.

- The crypto rally was short lived with the market selling off on the back of U.S. transferring 10K BTC to Coinbase Prime and Jump offloading 17,000 ETH.

- As anticipated, BTC and ETH front-end vols sold off post-CPI, dropping around 10 vols. Risk reversals also dipped further to -8 and -6 vols for ETH and BTC respectively. This indicates that the options market is now anticipating more downside due to the fresh supply.

Trade Idea
In this thin and highly leveraged environment, any price movement will be amplified. A Digital Win-Range strategy offers an attractive risk-reward trade.
BTC Win-Range (Top Side)
Get paid 4x if BTC fixes within the range.
Payout: 4x
Maturity: 27 SEP 24
Range: 65k to 70k

BTC Win-Range (Down Side)
Get paid 5x if BTC fixes within the range.
Payout: 5x
Maturity: 27 SEP 24
Range: 50k to 45k

Spot Ref: 58,700 BTCUSD

QCP Asia Market Color - 14 August 2024

- BTC reclaimed $60K overnight and is stabilizing at these levels, fully reversing last Monday’s sell-off. BTC even ticked higher when Bitgo moved $2B of Mt. Gox BTC last night. This could signal that the market is beginning to disregard this supply factor.

- ETH spot ETFs continue to attract inflows, marking a 2-day winning streak and drawing $24.3 million in net inflows on Tuesday.

- Last night’s softer US PPI print shifted market expectations towards a 50bps rate cut in September by the Fed, with the probability now at 52.5% for 50bps versus 47.5% for 25bps.

- All eyes are on tonight’s US CPI print. A soft CPI could support a recovery in risk assets like equities and crypto on the back of anticipated Fed rate cuts.

Trade Idea
With consistent ETF inflows and BlackRock buying the dip last week, crypto seems relatively well supported. However with no major catalysts on the horizon, we anticipate limited major breakouts until Q4.

PRINCIPAL PROTECTED BTC RANGE ACCRUAL
Coupon Rate: 19% pa in USD if BTC/USD fixes at-or-within the range 56k to 66k, 0% otherwise
Maturity: 8NOV24
Coupon Frequency: Weekly from 23AUG24
Full redemption 100% in USDC at maturity

Spot ref: 61,000

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.

1. 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

QCP Asia Colour – 08 Aug 2024

- The BOJ deputy governor downplayed the chances of another near-term rate hike.

- Crypto markets seized the opportunity to recover but ETH continues to underperform.

- There is a potential cap on the topside in the near term with Jump Trading continuing its ETH liquidations (21,394 $wstETH ~$63.6M left) and Plus Token Ponzi 2 ETH wallets moving a total of 25,757 ETH ($63.1M) in the last 30 hours.

- We remain bullish on BTC as we see significant call buying in the Dec and March expiries. Major funds also continue to roll their Sep long call positions.

Trade Idea
Receive a weekly 23% p.a. coupon while BTC continues to recover through the summer months. Downside protection - buy BTC at 21% lower from current spot (45k) only if spot price is below 40k at expiry.

FIXED COUPON CONVERTIBLE (FCC)
Weekly Coupon Rate: 23% p.a. as long as BTC/USD fixes above Coupon Level
Coupon Level: Above 45,000
Maturity: 1NOV24
Strike: 45,000
Protection Level: 40,000

(BTC Spot Ref: 57,200)

QCP London Colour – 07 Aug 2024

Monday's market turmoil may feel like a fever dream for many as assets have largely recovered from the massive sell off. TradFi finally had a taste of a regular day in crypto as the VIX traded above 65%!

While the initial shock may have passed, we foresee continued selling pressure in the coming days as systematic funds continue to pare exposure in light of the heightened volatility.

We recommend keeping a close eye on Nasdaq, Nikkei, and USDJPY as cross-asset correlations remain high in the near term.

We believe the Fed will refrain from an emergency cut in Sep, or an intermeeting cut in Oct, as that will exacerbate panic.

Trade Idea
With the acute phase of market volatility over, we favour establishing longer term bullish positions in anticipation of a cutting cycle. We prefer trades with a 3-6mth time horizon to prevent getting chopped given higher volatilities.

BTC Win Range
Get paid 5x if BTC fixes within the range.
Payout: 5x
Maturity: 27DEC24
Range: 75k to 90k

QCP Weekend Brief – 2 Aug 24

This week saw the market rudely reversing the Trump crypto boost with BTC price retracing from the post-speech high of 70k to almost 60k this morning.

Reasons for the correction

1. The market was hit by significant BTC supply right after the weekend. Coincidence? US Government (~28,000 BTC), Mt. Gox distribution (33,960 BTC), Genesis creditor distribution ($1.5b USD worth of BTC & ETH).

2. Mining difficulty reached an all-time high after a 10.5% jump in mining difficulty which would naturally put pressure on miners to sell.

3. Bearish macro sentiment from the high unemployment print (4.3% actual vs 4.1% expected) had spillover effects on crypto with increased anticipation of recession down the road. VIX crossed above 28 today, the highest print since the regional banking crisis in Mar23.

What are we seeing in the options market?

While BTC risk reversals saw a bearish flip from +7% to -9% in the front-end as the market scrambled to buy downside gamma, BTC and ETH vols hardly moved. Front-end BTC ticked up from 45% to 48% while the back-end did not move. This is surprising given the action in VIX.

We see this as the crypto vol market indicating expectations for price volatility to settle down into the summer in spite of the jumpy price action we've seen in the last few days.

Perhaps the trade then is to be defensive and ride out the rest of Q3 with a zero-downside strategy and high coupon yield.

BTC RANGE ACCRUAL
Coupon Rate: 16% pa in USD if BTC/USD fixes at-or-within Coupon Range (57,500 to 66,500), 0% otherwise
Maturity: 1NOV24
Coupon Frequency: Weekly from 16AUG24
Full redemption 100% of USDC at maturity