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BTC ATM IV

ETH ATM IV

BTC at $71,091. ETH at $2,193. I'm going to let those numbers sink in for a second because two weeks ago we were sitting at $67,473 and $2,059 respectively, watching the world burn and wondering if digital gold was actually digital lead. BTC is up 5.4% since the last newsletter. ETH is up 6.5%. Not face-melting, not moonshot, but a slow, grinding, purposeful climb higher while every headline is screaming that the world is ending.

Here's the thing: The world isn't exactly in great shape. The Pakistan talks collapsed over the weekend. JD Vance flew to Islamabad, sat down with Iran's foreign minister Abbas Araghchi, and came home empty-handed. Trump responded by threatening a full naval blockade of Iranian ports starting today. Brent is back above $102 after dipping below $96 on Friday. The Strait of Hormuz is still effectively closed. Saudi Arabia lost 600,000 bpd of production capacity from strikes on its facilities. Dated Brent hit $144 in the physical market this week, the highest print in history. We're living through the largest oil supply shock on record.

And yet, BTC is at $71k, the S&P 500 closed at 6,817 on Friday, the VIX is at 19.23, and gold is at $4,700 and falling. None of this makes sense if you're reading the headlines. All of it makes sense if you're reading the positioning data.

Look, I get it. The headlines are terrifying. Vance walked away from the table in Pakistan, Trump is tweeting about blockades, and you can make a very compelling bear case in about 30 seconds. But if you've been short US equities through this entire conflict, you've made approximately nothing. The S&P is 1% lower than where it was when the first bombs dropped on Iran. One percent. Through a ground-shaking oil crisis, the closure of the world's most important shipping lane, and arguably the most dangerous geopolitical escalation since the Cuban Missile Crisis. That should tell you something.

What it tells me is that the people with real money are looking through this, not at it. We've moved past the “Is this World War III?” phase and into the “How does the deal get done?” phase. If you've watched Trump negotiate anything over the past decade, this weekend's collapse in Pakistan is just act two of a three-act play. Deadline, escalation, last-minute deal. The man is nothing if not consistent. The market knows the playbook.

The bigger story here is positioning. Goldman's latest note shows hedge funds sitting net shorter than they were at the “liberation day” lows back in April 2025. Deutsche Bank's research has equity exposure at the lowest since May 2025, right in line with the opening months of the 2022 bear market. Think about that. Professional money is positioned for Armageddon, and Armageddon hasn't shown up. At some point, those shorts need to cover. At some point, those funds need to deploy. You can't sit in cash and T-bills forever when your LPs are watching the S&P grind higher without them.

The shorts are fighting structural headwinds they can't overcome. Borrowing stock costs money. Leverage costs money. Meanwhile, the Treasury is running a deficit that's flooding the system with paper, the Fed balance sheet is quietly expanding again, and there's roughly $40 billion a month in fresh liquidity looking for somewhere to go. Bessent managed to get bond vol under control these past few weeks, which matters more than people realize, because MOVE index compression unlocks balance sheet capacity for dealers. More capacity means more liquidity means more fuel for the fire.

Here's the other thing nobody is talking about. The US is actually relatively well positioned for an oil shock compared to everyone else. European and Asian markets ran hot for the past 12+ months while the US lagged. Now the script flips. An oil supply crunch from the Gulf hurts energy importers way more than the US, which is a net exporter. If flows start redirecting American-bound, the US gets cheaper energy while the rest of the world pays up. That's going to pull capital back stateside in a serious way.

The AI rotation noise? Irrelevant at the index level. Some names win, some names lose, money sloshes around, and the S&P barely moves. The Fed has a dovish lean with a bias to cut, Warsh coming into the chair only accelerates that, and US economic data kept surprising to the upside right up until the war started. We entered this crisis from a position of strength, not weakness. If you're sitting there wondering why the market won't go down, that's your answer. Everyone already sold. The only move left is up.

Let's talk about what happened to the vol surface, because this is where the story really gets interesting.

BTC ATM vol has been crushed across the entire term structure since the last newsletter. 1W went from 51.26% to 43.13%. That's an 8 vol drop on the front end. 1M from 50.08% to 43.23%. 3M from 48.86% to 43.84%. 6M from 50.01% to 45.33%. Every single tenor got hammered lower despite the fact that the geopolitical situation is arguably no less uncertain than it was two weeks ago. What changed? The market got the ceasefire on April 8th, BTC popped to $72k, and even though the ceasefire immediately started falling apart with Israeli strikes on Lebanon and Hormuz getting shut again, vol just kept grinding lower. Vol is meant to be sold…

The term structure is now showing a slight contango, with the front end at 43.13% and the back end at 45.33%. That's a healthy structure. It's not pricing in an imminent crash. It's not pricing in a vol event. It's pricing in a market that's slowly getting comfortable with the uncertainty.

ETH is a similar story but from higher levels. 1W down from 70.03% to 61.97%. 1M from 70.86% to 64.02%. The ETH-BTC vol premium is still running about 21 vols across the entire term structure, basically unchanged from last time. The market continues to see significantly more idiosyncratic risk in ETH. That hasn't changed, and honestly it probably shouldn't. ETH's problems are structural, not geopolitical.

Now here's the skew data, and this is where it gets really telling. BTC 25 delta skew went from -10.75 at 1W to -5.90. At 1M it went from -9.25 to -5.21. That is a massive normalization of put skew. Two weeks ago traders were aggressively bidding up crash insurance. Today? They're still hedged, but the panic premium is gone. The demand for downside protection has cooled substantially, even though the war is still going and Hormuz is still closed. The options market is voting with real money that the worst case scenario is getting priced out.

ETH skew is even more interesting. 1M at -2.90 versus BTC at -5.21. ETH put skew is now less steep than BTC, the same counterintuitive pattern we noticed last time. BTC holders are still the ones more worried about a downside catalyst, probably because BTC is the one that's supposed to act like a safe haven and hasn't, while ETH holders have already given up and accepted their lot. When your asset is down 80%+ from ATH, what's another 10%?

For the vol traders, the setup is shifting. Two weeks ago I was talking about selling front-end put skew against longer-dated longs. That trade has already worked beautifully. The skew compression from -10.75 to -5.90 at 1W is pure profit if you were short the front-end risk reversal. The question now is what's next. With vol this compressed and still trending lower, but geopolitical risk arguably ramping back up with Trump's naval blockade announcement, there's a case to be made for buying cheap vol here. The VRP (vol risk premium) is shrinking and if realized vol picks up on the back of actual escalation, the front end could reprice violently higher. But I wouldn't fight the trend. The path of least resistance for vol right now is sideways to lower as the market grinds towards resolution. NFA.

Oil is the centerpiece and it's going to stay that way for a while. Brent at $102 today after the Pakistan talks collapsed is not great, but it's still well below the $115+ we were talking about two weeks ago. The ceasefire, even a fragile one, took some of the fear premium out. Dated Brent at $144 in the physical market tells you the actual supply picture is still dire, but the futures market is pricing in resolution eventually. That gap between physical and futures is one of the widest in history. If you're a physical oil trader, you're printing money. If you're a spec, you're trying to figure out which side of the gap closes first.

Gold corrected further from the January highs near $5,500 to around $4,700 today. That's a 15%+ pullback from the peak. The Fed signaling only one cut in 2026 and CPI coming in hot at 3.3% has complicated the gold bull case. Higher real yields, stronger dollar narrative, and forced selling from margin calls in other asset classes. But look, gold is still up massively year over year. It did its job as a safe haven when it mattered, it front-ran the conflict, and now it's consolidating while the market figures out the next move. BTC still didn't do what gold did. That narrative is wounded but not dead.

BlackRock clients bought $269 million in BTC last week, explicitly positioning it as a geopolitical hedge. Their total acquisitions have exceeded $3 billion since the conflict began. That's not retail chasing green candles. That's institutional money with a thesis and a mandate. The BTC ETF flow picture has shifted from the net negative we were seeing a few weeks ago to more balanced, and the structural demand from these allocations provides a floor that didn't exist in previous cycles.

The SEC and CFTC coordination pact is still in play. There's a CLARITY Act roundtable scheduled for April 16th. Hong Kong just issued its first stablecoin licenses. CoinShares debuted on the Nasdaq. The infrastructure buildout continues even while the price chops sideways. This cycle is different in that the institutions aren't leaving, they're using the dips to build.

The next two weeks are going to be intense. Here's what matters.

CPI already came in hot at 3.3%. The oil shock is going to keep pushing that number higher. The Fed is trapped between wanting to cut and having the data not cooperate. If you think the oil shock is temporary and Hormuz resolves, inflation peaks and the Fed can cut. If you think this drags on, we have a stagflation problem. That's the binary.

Two weeks ago the narrative was peak despair. Digital gold was dead, basis was dead, everything was bleeding, and we were on Day 31 of a war with no end in sight. Today? BTC is at $71k and climbing. Vol is crushed. Skew has normalized. The S&P is 1% off where it was when the conflict started. The options market has taken the tail risk off the table and is pricing in resolution.

None of that means we're out of the woods. The Pakistan talks failed. Trump just announced a naval blockade. Brent is back above $100. The ceasefire is hanging by a thread. But the market has decided that the path forward is negotiation, not escalation, and positioning is so offside to the downside that even bad news can't push us meaningfully lower. When everyone is short and hedged, who's left to sell?

I'm not going to pretend I know how the Iran situation resolves. But I know what the vol surface is telling me, and it's telling me the panic is over. Price is grinding higher, vol is grinding lower, and the institutional bid underneath is getting stronger by the week. Bears make for good engagement, bulls make money.

Stay pimpin.

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Kyan Code: Special-7ftv9x-arb

Vol data from Block Scholes: https://www.blockscholes.com

Charts from Velo Data: https://velodata.app/

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