Welcome to another edition of Qume Market Mondays!
Markets vs Economy:
Equity market indices across the world have been rallying since April despite and in the face of one of the worst economic downturns in history.
In the last 3 months, the S&P 500 has gone up 19.9%, whereas DAX is up by 30.4% and Nikkei 225 by 23.08%.
Despite Germany and Japan announcing a recession in their last quarter, the S&P ASX 200 is up 13.8%. Australia is likely to announce a recession too as their GPD declined by 0.3% for the first three months of this year.
The new US unemployment figures did boost investor confidence last Friday as the rate decreased for the first time since the fallout began from the pandemic. It is now at 13.02%, with companies registering around 2.5 million new jobs in May.
Bond yields are very low with short-term US inflation-protected bonds offering negative yields.
Stocks are overpriced, although, some level of economic recovery was expected as economies opened up, the recovery rate of stock markets this time is far more accelerated than the previous ones. This gives more weight to the idea that stock markets are not the economy.
Bitcoin Mining:
Mining profitability has been decreasing post halving and that has caused mining difficulty to decrease with unprofitable miners falling off the grid.
We may be coming close to the consolidation of mining profitability downturn, but its rate of recovery will depend upon how many new entrants register in upcoming months. We expect this to be a very slow transition as some global supply chains will take time to be back on track, while some countries are continuing with the lockdown.
Derivatives Market:
Bitcoin price finally broke the $10,000 mark last Tuesday and went up to $10,300+ levels before a correcting sharply to $9,200 and has now recovered to $9700+ levels.
This dramatic price movement at first liquidated overleveraged shorts in significant amounts on BitMEX, and then liquidated overleveraged longs due to which price of XBTUSD on BitMEX dropped to $8,600.
On June 2, hourly liquidations were more than $100M on BitMEX.
BTC options open interest have been surging for a couple of weeks and Ether options too have registered quite a dramatic surge in open interest volumes.
OKEx launched ETH options last week and is recording significant open interest volumes already.
It can be read that crypto markets are getting ready for more complex derivatives products with market participants looking beyond highly speculative trading and are willing to create portfolios that are more sophisticated by using options for hedging.
July 2020 options are looking good for long on call options as the price is expected to rally.
Arbitrage opportunities are highly compressed between 1–15bps except for wallofcoins.
Data Sourced from www.skew.com
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