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Home » News » Crypto » Behind the numbers on the Bitcoin flash sale

Jeff Gao, CEO of Cypherpunk Holdings takes a look at the charts after last week’s sell off.

Let’s start with the Bitcoin Funding Rate. The flip from neutral to negative funding rate on December 4th appears all but a flash in the pan, as shown by our first chart.  (Click any of the charts in this article to see a larger version.)

Perpetual Funding Rate vs Index Price
Chart 1. Perpetual Funding Rate vs Index Price

And surely, if we were to compare DEC 4th with funding rates over a 6 month period, it was a mild flash at that. A ‘much ado about nothing’ event relative to the June-July period, as shown by chart 2.

BTC Funding Rates History
Chart 2. BTC Funding Rates History

BTFD Volume Comparisons

I’m not saying we can’t head further South but the dip on December 4th (see chart 3) had a volume of 10K BTC, which is less than a third that of May 19th where volume had been 32.5K BTC.

BTC vs US Dollar
Chart 3. BTC vs US Dollar

Open Interest

Observe the aggressive drop in open interest during and in the lead up to the JUN-JUL correction in chart 4.

Futures Open Interest and Perpetual Open Interest
Chart 4. Futures Open Interest and Perpetual Open Interest

The same cannot be said for the NOV doldrums and DEC 4th flash fire sale…at least not yet – hodlers are still very much in the game! Participation equals resilience.

Implied Volatility

Just like CBoE’s VIX, Deribit’s DVOL is its homebrew gauge of the 30 day look-ahead annualised implied volatility, shown here by chart 5.

Index Price and BTC DVOL
Chart 5. Index Price and BTC DVOL

Unlike May’s volmageddon, November and December barely registers. In fact, without looking at the price chart, and using DVOL alone, trying to guess the price direction would be about as good as a coin toss.

From ‘tomorrow never dies’ to ‘die another day’…

You have to admire the pure, unwavering, gall of crypto traders. Look at the next chart.

Top Volume by Instrument, Open Interest by Expiration
Chart 6. Top Volume by Instrument, Open Interest by Expiration

It’s Monday December 6th at the time of writing this sentence and the most popular instrument by volume, head and shoulders above the rest, are long calls at $120,000 USD strike expiring…wait for it…in 25 days!

Seems everyone wants that New Year’s Eve payday to close out 2021. Having lost their lunch trading the spot market, the YOLO crowd have (once again) shuffled into call options. Crypto has certainly done wonders with accelerating financial literacy. Pretty much everyone in the community knows about puts and calls now…understand, not so much…but know about, very much so!

Never change, my crypto brethrens! Never change!

The Smile

Four days out (chart 7), it’s a fair fight between longs and shorts; the put-to-call ratio for DEC 10th expiration is 0.87. With BTC hovering around $49K USD, there is formidable resistance around $50K and $52K.

Open Interest by Strike Price, Dec 10th Expiration
Chart 7. Open Interest by Strike Price, Dec 10th Expiration

25 days out (chart 8), the IV smile is now exorbitantly crooked to the upside. That skew to the upside persists for longer dated expirations right through to SEPT 30th 2022 expiration where the put-to-call ratio is down to 0.30. For the time being, Put buying seems very much a November and December phenomenon.

Open Interest by Strike Price, Dec 31st Expiration
Chart 8. Open Interest by Strike Price, Dec 31st Expiration

Deribit Insurance Fund

Deribit presently holds just over 600 BTC in its insurance fund (chart 9) to cover losses incurred by bankrupt accounts in those instances where the accounts are not closed quickly enough to avoid a drawdown from these reserves. Should these reserves become depleted, losses will then be socialized among winning traders.

Deribit Insurance Fund size
Chart 9. Deribit Insurance Fund size

Lo and behold! Deribit did experience (chart 10) a draw of ~12.7 BTC from those DEC 4th liquidations.
354 bankruptcies in total if you sum across a 48 hour window.

Deribit Daily Bankruptcies and Insurance Balance
Chart 10. Deribit Daily Bankruptcies and Insurance Balance

December may bring on additional bouts of volatility. See chart 11. If equities are anything to go by, the VIX front month has certainly been stubborn.

S&P 500 VIX Futures
Chart 11. S&P 500 VIX Futures

But crypto isn’t equities and although we do see positive correlations during persistent corrections, one would expect DeFi to chart its own course such that, in an ideal world, crypto is uncorrelated to CeFi. We have yet to transition to that type of regime…but the crypto community is nonetheless optimistic that the day is coming.

Useful References

This article is not investment advice. Investors should do their own research or consult a professional advisor.

Jeff Gao

Jeff Gao

Jeff Gao is CEO of Cypherpunk Holdings. Jeff joined the company in April 2021 as an advisor to the Investment Committee. A quant and data scientist by way of training, Jeff holds a degree in Commerce (Actuarial Science) from The University of Melbourne and is a BSc / MEng (Electrical) graduate from Monash University. Prior to joining HODL, Jeff worked across a range of start-ups in his hometown of Melbourne Australia and currently holds a lecturing post at Kaplan Business School. Jeff is also a sophisticated investor and runs a small family office, managing private wealth.

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