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BTC ATM IV

ETH ATM IV

Two weeks ago in #68, BTC was at $80,917. I told you it was a positioning unwind, not a fundamental repricing. That the shorts got too short, the puts got too bid, and then the tape did what it does. Well, the tape kept doing what it does. It squeezed the shorts into oblivion and then gave it all back. BTC is at $77,290. Down 4.5% in two weeks. ETH is at $2,115, down 8.6%. The dealer short gamma above $82k that I flagged in #68 never got tested cleanly. Looking back, we topped at $82k on May 7 (pre-#68), and it has been lower ever since.

Here is what is wild. The macro backdrop actually improved. Dramatically. Trump said Saturday that a deal with Iran is “largely negotiated.” An MOU covering the end of the war, Hormuz reopening, the US lifting its naval blockade, and Iran entering two-month nuclear negotiations. Iran committed in principle to disposing of its enriched uranium stockpile. Pakistan’s army chief, Asim Munir, held talks in Tehran. Thirty-three ships passed through Hormuz in the last 24 hours with Iran’s permission. Another 240 are still waiting. Oil dropped from $113 to $103. Though I write this with enthusiasm, Iran claimed there was no deal just this morning, so we are back to the back-and-forth of the whip. Do not get married to your positions. Stay liquid, and do not get liquidated.

In #68, I said if Hormuz reopens, we melt up. If Hormuz stays closed, we grind up. Both paths pointed higher. And the deal is closer than it has ever been. So why are we lower?

Because BTC front-ran the deal, and now it needs the actual catalyst. The move from $60k to $81k was the market pricing in everything going right. Now everything is going right and the market wants proof. Announcement, not speculation. Signatures, not leaks. The old Wall Street saying: buy the rumor, sell the news. We bought the rumor at $60k and rode it to $81k. Now we need the news.

Let’s look at the surface because the divergence between ATM and skew is the most interesting thing in this tape right now.

BTC 1W ATM is 30.32%. Down from 33.25% in #68. Down from 43% in #66. Down from 51% in #65. We have gone from 51 to 30 in three months. That is a 21-vol compression. The term structure is in clean contango: 30.32% at 1W, rising to 40.23% at 6M. This is the most normal the BTC vol surface has looked since before the war. Realized vol is running in the high 20s, so sellers are still getting paid, but the juice is almost gone.

ETH vol compressed too, but the premium persists. ETH 1W at 42.69% versus BTC 1W at 30.32% is a 12.4-vol gap. At 1M, it is 46.34% versus 32.17%, a 14.2-vol gap. In #68, the gap was ~12 vols at 1W and ~15 at 1M. Roughly the same. The market continues to price significantly more idiosyncratic risk in ETH. And ETH continues to earn that premium by bleeding 8.6% in two weeks while BTC only gave back 4.5%.

Now here is the part everyone should be paying attention to. The skew re-steepened. In #68, I made a big deal about BTC 1W skew at -2.22%. Calls bidding over puts inside of a week. I said the squeeze was real and dealers were short gamma. Two weeks later, 1W skew is -3.13%. 1M skew went from -2.74% to -4.04%. 90d from -3.81% to -4.48%. Puts are getting bid again across the entire curve.

The market is doing two things simultaneously that seem contradictory but are actually completely rational. ATM vol is compressing because realized vol is low and the tape is grinding, not exploding. But skew is steepening because institutions are putting on downside hedges for the deal falling apart. They are not paying for ATM protection. They are paying for tail protection. That is a sophisticated bid. That is someone who thinks BTC stays in a range if the deal progresses, but knows it goes to $65k fast if talks collapse.

In #68, I called the risk reversal term structure “the market’s confession.” It is confessing something different now. Two weeks ago, it was confessing that the near-term squeeze was real. Now it is confessing that the near-term risk is to the downside while the longer-term view has not changed.

Speaking of things that matter. Tom Lee said at Consensus that three monthly closes above $76,300 would constitute a definitive bull market call. In #68, I told you BTC was sitting $4,600 above that line with three weeks to go. Now it is sitting $990 above it with six days left in May.

That is a lot tighter than anyone expected. If BTC slips below $76,300 before May 31, that narrative dies. If it closes above, the conversation becomes whether June and July can hold. Either way, the range is getting compressed and something has to break. Should note that Mr. Lee is down billions and talking his book.

Everything I wrote about the macro hinge in #68 still applies. But the probabilities have shifted.

Brent dropping from $113 to $103 is a $10 move on deal expectations alone. If the deal is announced this week and Hormuz reopens with a timeline, oil goes to $80-90 quickly. Goldman has $90 for Q4, down from their worst-case $147. The OPEC+ production increase of 200k barrels per day starting in May is already adding supply. If oil goes to $80, the inflation impulse disappears. PCE pulls back from 3.5%. The Fed hawks lose their ammunition. The easing bias returns. Risk assets rip.

But Trump also said Sunday that he is “not in a rush” and that “time is on our side.” Iran’s news agency says there are “wide disagreements.” Iran wants to keep managing the waterway. The US wants it fully open. The blockade stays in full force until a deal is “reached, certified, and signed.” Those are not words of imminent resolution. Those are words of someone maximizing leverage.

The S&P at 7,473 is at all-time highs. The Dow crossed 50,000. VIX at 16.70. Gold at $4,523, down from the January highs and still correcting. Markets are closed today for the US holiday; check tomorrow’s charts for fresh prices. The equity market has decided the war does not matter. Or at least that it is priced in. Crypto has not gotten that memo yet. BTC sitting at $77k while the S&P is at ATH tells you the correlation has broken. Whether that is a buying opportunity or a warning sign depends entirely on the next 48 hours of diplomacy.

The calendar spread I outlined in #68 (long 90d BTC 95k call versus short 30d 90k call) has bled some theta, but the structure is intact. The 90d leg gained value as the term structure steepened and 90d vol dropped less than 30d vol. If you are in that trade, hold. The convexity into a deal announcement is what you are paying for.

The ETH vol short via 30d ATM straddle, delta hedged, has printed. ETH 1M ATM went from 51.22% to 46.34%, with realized still running mid-30s. That carry has been the cleanest PnL on the options screen for two straight months.

New setups worth watching:

Vol is meant to be sold, until it is not. We are entering weird territory that could introduce a vol spike and knock out all these sellers. This could be the catalyst we need to see higher prices. Not sure when it comes, or if it comes, but it is something to be aware of if you are carelessly selling vol down here.

This is NFA. Size accordingly and keep your risk tight.

BTC at $77,290. Down 4.5% from $80,917 in #68. ETH at $2,115, down 8.6%. The squeeze died at $82k and gave it all back. Vol compressed even further to 30% on the front end. But skew re-steepened from -2.22 to -3.13 on 1W and from -2.74 to -4.04 on 1M. The market is calm on the surface and nervous underneath.

The deal is “largely negotiated.” Oil dropped $10 on the news. Thirty-three ships passed through Hormuz. But Trump is “not in a rush.” Iran says there are “wide disagreements.” We are $990 above Tom Lee’s bull-call line with six days left. The S&P is at ATH while BTC is pulling back. The correlation has broken and something has to give.

In #68, I said bears made for great engagement and bulls made money. Two weeks later, the bulls gave some of it back. But the structure has not changed. ETF flows are still positive. Long-term holders are still distributing into institutional demand. The positioning unwind that took us from $60k to $81k is done, but the fundamental bid underneath it is not.

If the deal comes, $85k-$90k fast. If it does not, $74k and we do this all over again. The vol surface says the market thinks the range holds. The skew says the market is hedging the downside. Pick your side.

Stay pimpin.

Notes: Kyan is live on Arbitrum Mainnet. Options, perps, portfolio margin, combo trades, and liquidity are available!

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

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

Twitter: https://twitter.com/VeloData?s=20

Recap:

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