Qume Market Mondays- 15 June 2020

Welcome to another edition of Qume Market Mondays!

Market Reality Check

In our last edition of Qume Market Mondays, we analysed how the markets had recovered too much too fast and were not correctly indicating the general economic environment worldwide.

NASDAQ hit an all-time high of 10,000 last Tuesday. However, the markets soon realized the unstable rally it was on with Dow Jones, S&P 500 and NASDAQ falling four times in a day registering the worst hit since March. Indexes around the world were in the same boat.

Friday saw some market recovery but still, the week closed on a loss. Reports of the second wave of COVID-19 pandemic emerging in the USA has probably given investors cold feet.

VIX and BTC-USD price have been negatively correlated historically. The last three months daily correlation is -.24539 and VIX as seen from the chart above serves as a good Indicator for Bitcoin’s future movements. Last week VIX spiked from June 10 to June 11 whereas BTC weakened. After that VIX declined on Friday and BTC showed some recovery.

The matrix shows how VIX and DJI have moved in relation to BTC, as VIX declines we expect BTC to recover furthermore to $9500+ level this week.

BTC vol to VIX vol ratio is extremely low.

Retail participation in US markets is at an all-time high and experts worry over the increase in the speculative rallies forming a bubble in the market as in NAFC.

Wall Street experts in the USA are worried that as the markets recover a bit, the Fed will pull the stimulus package that is still needed to save the markets. However, the Fed has stated that they are committed to preventing this health crisis from becoming a financial crisis. It has already helped the markets a lot with total assets held by them now at $7.169Tn, which is almost double of what they had at the start of this year.


If the second wave of coronavirus emerges with economies unlocking, several factors that will affect the markets:

  1. As workers return to their workplace, businesses would be placing them at risk by having them work under a potential life-threatening environment and that could have legal repercussions to these businesses.
  2. Many health experts have stated that without a vaccine, the second wave will be worse than the first one and in such a scenario, the economy will tumble down further.
  3. Even if the vaccine reached human trials stage by late July, mass production and distribution would be by early 2021; this would further deteriorate investors’ confidence.

Crypto

Bitcoin wasn’t immune to the choppy markets either. In a reaction to the traditional financial markets crashing this Thursday, BTC also dropped $800 after crossing the $10,000 mark. It recovered somewhat to $9,600 support levels then fell down again. It is now at $9,000+ levels.

After Thursday, BitMEX XBTUSD-Coinbase BTC-USD basis has reversed as well as other perps contracts are registering negative basis rate against spot markets. Hence, perps are selling at premiums.

If the trend continues, we could see some sideways movement in BTC markets this week.

Bitcoin futures 24-hour volumes on exchanges have been lower than usual, and 10-day realized market volatility spiked momentarily on Thursday then fell afterwards.

With only momentary widening of the bid-ask spread, markets remain liquid. Although Deribit is suffering from a high $10mln B/O spread of (400, 1000) bps range, while other futures exchanges only had their spread in the (0, 100) bps range.

Bitcoin options aggregated open interest volumes have been spiking up and are now half the value of BTC futures aggregated open interest volumes. Daily aggregated open interest volumes on BTC futures is around $3bn+.

Unregulated exchanges are still a big roadblock for investors to invest in bitcoin. Due to which, ETH shares sold by Grayscale went at 500% premiums and BTC also sold at significant premiums.

Data Sourced from www.skew.com

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