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Market Volatility and Resilient OHMies

Jul 19, 2021 · 5 min read

By Ashwath Balakrishnan, and Jeremy Ong

Market Update

BTC is back at the range lows and it’s not looking great for crypto markets. Actually, it’s not looking great for risk assets across the aboard. Almost every major stock index across the globe opened with a massive gap down.

Institutional members can tune in to Delphi’s latest analyst call tomorrow at 1pm ET to get the full rundown on markets, recent reports, and what’s on our team’s radar going forward

Imminent Volatility?

  • With Bitcoin sitting at the lows of its never-ending range, several traders and analysts believe volatility is imminent. But this isn’t necessarily true.
  • Implied volatility, which is the volatility with which the market prices options, has been declining ever since BTC’s price action started to decline. Since price is now trending in a particular direction (down), the market isn’t considered volatile. You can see the exact same pattern between Jan. 2021 and Apr. 2021 where BTC shot up from $27,000 to $65,000. BTC’s volatility would increase if it starts a fresh leg up towards the range high or if price falls below key support levels (~30k) and downside price action accelerates.
  • Realized volatility is the actual volatility an asset has endured. In the chart below, we show 1 month and 3 month volatility data (the dotted lines). Just given historical data from the past 6 months, volatility can still go a lot lower before hitting a lower bound — meaning the downtrend can continue.

  • It’s worth checking out the same chart for ETH. It follows the same pattern as BTC, but there was a massive spike in realized volatility thanks to ETH’s rally into May and subsequent implosion.
  • Despite that blow-off top on 1 month volatility, it’s unlikely we see ETH’s market structure diverge from BTC’s. ETH and BTC have a correlation of 86% over the last month — so if BTC goes down, so does ETH.

Implied Volatility Down, Skew Up

  • The 25 delta skew measures the price of a call option with a delta of 0.25 and the price of a put option that has a delta of 0.25. The point of this exercise is to determine the relative pricing between calls and puts that offer similar exposure. This data point gives us insight as to what option buyers are doing. Simply put, if the skew increases then puts are becoming more expensive than calls; if the skew decreases, call premiums are going up against puts premiums.
  • We see a large increase in mid-May — from days before the crash right into early June. This indicates that there was more demand to buy puts than calls. Since then, skews across option durations have fallen by a small amount. But we did see an uptick in recent days, which was especially pronounced in the 1 week options as investors and traders look for downside protection.

  • ETH’s 25 delta skew looks identical to BTC with one noticeable difference: there was no up tick in the last few days. Either everyone who wanted to hedge their ETH already did it, or nobody is interested in FOMO-ing into insurance (puts) at this time. You might consider this a plus for ETH,  but it probably doesn’t matter because ETH will just follow BTC anyway.

An Uncorrelated Crypto

  • OHM, OlympusDAO’s token, has exhibited countercyclical behavior off late, making investors a fair amount of gains while the broader market pulls back.
  • The market value of OlympusDAO’s treasury and its TVL both hit fresh all-time highs, as OHM shapes up to become a promising risk-off asset for the crypto ecosystem. OlympusDAO’s market cap is currently trading at a significant premium – 20x of its risk-free value (RFV) in treasury. Its market cap / total treasury market value is currently hovering at around 5x – which includes protocol-owned OHM-DAI and OHM-FRAX LP positions.
  • A big reason for their success is their cultish community, (3,3) memes, and Ohmie cards campaign promoting 5 digit% APYs. OlympusDAO is still a financial experiment in its early stages, and thus a very high-risk project. So maybe don’t ape in with your life savings.

Notable Tweets

Axie catches eyes from the mainstream.

Retail investors are holding a record amount of stocks.

Hopium for the Bitcoin ETF.

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