Crypto options market starting to have material impact on spot market: QCP capital

While a correlation between equities and crypto has become more apparent during the last year, Singapore’s QCP wrote that there is a limit to this correlation because of the increasing importance of the crypto options market.

  • As the bitcoin and ether markets followed the bearish sentiment of the equities market as the week began, bitcoin and ether tumbled below $40,000 and $3,000 respectively.

  • QCP wrote that they believe there was a bounce-back because of the number of strikes at the $40,000 mark for bitcoin, and the $3,000 mark for ether, held by whales.

  • The fund noted that there was a counterparty that was buying a large amount of downside risk reversals (where a trader buys the put and sells the call) who suddenly switched positions to take profit (where they sell the put and buy the call).

  • With the volume of delta trading (simultaneously buying and selling options) on the strikes at $40,000 and $3,000, there was a creation of spot support at those levels, QCP wrote.

  • QCP said that one reason why bitcoin is facing some resistance at the $44,000 market is that a whale began taking profit on his $42,000 January calls as bitcoin drifted towards $44,000.

  • “We think option activity will increasingly dictate spot movements as the options market continues to grow,” the firm wrote.

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