March performance and newsletter
The fervent trading environment has seen yields continue to make new recent highs, albeit with relatively subdued short term volatility keeping trading profits suppressed. The fund continues to have a material amount of carry marked into the curves – if history is anything to go by we will realise this when the market inevitably deleverages. The most notable market dynamic is ETH yields outperforming BTC at times, in particular the short end. Fundamentally we would expect proof-of-stake ETH to trade at a relatively flat yield to USD, suggesting there are some participants expecting an ETH ETF to follow in short order.
February performance and newsletter
Overall February was a good month for the strategy. Whilst the headline return was moderate, the position has a large amount of embedded carry that should be realised in the coming months. Volumes were good, although not to the same level as we saw in January. We’re beginning to observe a shift in the CME landscape as traditional market participants now have access to the yield arbitrage between holding a long spot ETF position vs selling a future. This was long mooted and is now occurring. What this implies for the longer term trading of the CME futures for the strategy is still not wholly clear but will unfold in the next few months.
January performance and newsletter
January proved to be the best month for the strategy since the heady days of 2021. This was due to a combination of factors: multi year highs in long dated futures yields, significant sustained volatility, liquidation events, consistently high trading volumes and the popularity of the BTC ETFs. With implied yields remaining favourable, the impact of the BTC and potentially ETH ETFs in the market and the BTC halving in April, we expect to see a continuation of the friendly trading environment. Additionally, on the trading system side we expect to go live with a suite of new instruments across the bulk of exchanges we trade on, leading to more opportunities.
November performance and newsletter
The unidirectional move provided less trading opportunities than we’d hoped. Coupled with the increasing futures yields (12% in March 2024 for example) that we continue to sell into meant the overall performance was modest. We expect that this yield environment will be conducive to a more profitable future return profile.
December performance and newsletter
Volatility increased and basis (the spread between spot and futures) widened, indicating more leverage being added into the crypto markets, to levels we haven’t seen since late 2021. Conventionally this has been a good trading environment for the strategy and December and January to a larger extent have proved this again.
October performance and newsletter
Leverage started to return to the market for the first time since prior to the FTX collapse, a full year ago, all the way back in November 2022. This was evidenced by the widening basis in the futures, particularly Bitcoin, and specifically in the Chicago Mercantile Exchange (CME) where we see institutional interest piquing.
September performance and newsletter
A relatively dull month on the trading side with limited volatility in either token. CME is becoming an ever more influential venue for price discovery, evidenced by their increasing share of the derivatives market.
August performance and newsletter
Overall a busier month than we’ve encountered for some time. Whilst overall movements in spot and basis were range bound, we did enjoy a particularly violent sell off on the 18th. This occurred during the period where the CME Futures were closed in early Asian trade, a generally illiquid time. We were able to capture many of the opportunities that presented themselves in that 30 minute period, and this episode contributed to over half the monthly return. The move itself was largely driven by technical actors in the options market and we saw all the futures dislocations in Deribit, the principal options trading venue.
July performance and newsletter
July continues on from prior months with CME yields remaining bid over centralised exchanges. The suite of support services continues to expand in the crypto space. We’ve had tentative discussions with providers that aim to provide prime brokerage or trading bridge support to help streamline our capital efficiency and market access
June performance and newsletter
CME yields continued to be bid over centralised exchanges over the course of June, with short date yields printing as high as 30%. We expect the CME to continue being indicative of institutional positioning after the implicit endorsement from BlackRock’s ETF application – the June23 BTC roll market was the most active we have ever seen into expiry along with open interest approaching all-time highs in the active contract. We have the infrastructure available to take advantage of these opportunities and continue to explore options to reduce the friction required to capture them.