CryptoBits: BTC Higher on ETF Flows; Long-Dated Implied Vol also in Demand

Written by
Freddie Flinn & Adam Farthing


February 13, 2024

Monthly Roundup

New BTC ETFs (exc. GBTC) by AUM stats are below as of 13/02/2024. Fees post waiver. ​​​​

Source: BitMEX Research & Blockworks
  • IBIT and FBTC are both individually doing more 24h volume than GBTC with a combined AUM of well below 50% of Grayscale. In the past 24h, IBIT has logged north of $900m in trading volume.​
  • On Friday 9th and again on Monday 12th Feb, the Invesco/Galaxy product became the first non-GBTC ETF to see a day of net outflows ($17.4m followed by $20.8m). The reason for this isn’t immediately clear with their fees being largely in line with the rest of the pack. ​​​​

It has been widely reported, and corroborated by dwindling GBTC outflows, that most of FTX’s Grayscale position was sold throughout January. At the beginning of February, Genesis filed for permission from a US judge to sell their holdings of GBTC which at the time of writing are worth around $1.5bn.

Still, the market’s reaction to these ETFs has been encouraging. In an October 2023 article, Galaxy estimated $14bn of new inflows in the first year. Accounting for the c. $6.5bn exiting GBTC, we have seen net inflows of $3.1bn in a little over a month of trading. Whether this pace will be sustained remains to be seen but in crypto, price often drives flow. The outlook for the rest of this US election year with possible rate cuts on the horizon appears constructive for risk assets.

Key News

Horizon Scanning

  • Blockworks DAS takes place in London from 18-20 March after relocating from Washington DC.
  • The next Bitcoin halving is likely to be midway through April. Block rewards will reduce from 6.25 BTC to 3.125 BTC. ​​​​
  • Coinbase will release its Q4 and full year 2023 results on 15 February. Investors will be watching closely to see how ETF approvals have impacted Coinbase’s key revenue streams. CEO Brian Armstrong is confident that while ETFs will attract BTC flow, consumers still want to access and are willing to pay for other crypto assets and services.

BTC Higher on ETF Flows; Long-Dated Implied Vol also in Demand

Key Takeaways

  • BTC up from 43k to 50k (+16%); move accelerated Friday
  • ETF inflows increased at the end of last week, GBTC out-flows remained low
  • ETH underperformed BTC last week but caught up yesterday
  • SOL and AVAX the best of the rest, both up ~20%
  • Futures basis picked up late last week, higher on Western exchanges
  • Implied vols up strongly, demand focussed on back end vega ​​​​

Flow Analysis

Looking Back

After a week in the 42/44k range, BTC broke decisively last Wednesday, and has seen a strong uptrend since with virtually no pullbacks between $43k and the highs just above $50k, where it currently trades, up around 16% on the week.  ETH followed BTC higher for most of last week, but lost ground as the cross traded down from 0.055 to 0.052.
Yesterday ETH caught up a little, and currently trades around 2650, up 14% on the week.  Most cryptocurrencies rose with the majors, but the best performers were layer-1 tokens SOL and AVAX, both of which had huge runs higher at the end of last year, and both of which have rallied about 20% in the past 7 days.

Our flows have shown a strong bias to buy BTC (58.8%) while the opposite was true in ETH (55.2% sell flow).  We also saw notably strong biases to buy in SOL (68.7%) amongst others, while we saw better selling in DOG (67.3%), BCH (70.0%), and LTC (66.8%).

Preference to buy BTC over ETH.  Generally, strong buying of alts.​​​​​.

Futures basis had been pretty quiet for a few weeks, with BTC term futures on major crypto native exchanges trading within an 8.0-10.5% range, and on CME in the 9-13% range.  In the past few days this front end BTC basis has widened to 15-20% on Deribit and CME, and to 12-14% on Asian exchanges, potentially implying a fresh bout of demand from leveraged accounts.  

Vols have moved a lot higher over the week, but what makes the vol move really interesting is the fact that bulk of demand has been for vega, not gamma.   While March ATM options are up 11 vols to 53% on the week, June ATM vols are up 9 vols to 59.5%.  A natural move driven by an increase in realised volatility would normally result in March moving about 1.75x faster than June vol.  In this case however, March has moved higher by a factor of only 1.25x.  
There are two reasons for this “underperformance” of front end vols: firstly, without any pullbacks in spot, although the move has been large, it has not been volatile, so traders have not needed to buy gamma to insure delta risk.  Secondly and perhaps more interestingly, we have seen consistent demand for back end (June-Dec) vega from large hedge funds.  Buying 5 month ATM straddles at 60vol implies breakevens around 30% from current spot.
Large money managers would only pay that sort of premium if they had a view that the underlying asset had a good chance of rallying 50-100% or more over that sort of time frame.  This vega demand implies that large US money managers are betting on such a view. ​

Looking Ahead

In crypto-land, traders will continue to focus on ETF flows, and given the sticky nature of ETF demand, one has to imagine that if there are more days like the last few, large inflows will be met by further price rises for spot BTC.   Alt-coin traders will be watching charts for breakouts on the BTC crosses, particularly SOLBTC and AVXBTC, both of which have been consolidating after large moves higher in December.

Dive into the Data

OTC brokers took the crown with 70.6% buy-side flow
Americas clients were our strongest buyers with 61% buy-side flow.

All data sourced from our real time systems supporting global 24/7 liquidity provision

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