Bitcoin Rises As December Call Options Climb, Archegos Fund Collapse

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Bitcoin is trading around $58k again while the majority of crypto coins rises. Meanwhile traders are busy buying call options for Bitcoin to reach anywhere between $100k and $300k by the end of the year.

Over in stock markets, the sale of most of its $20 billion position by a hedge fund called Archegos has investors spooked.

HODL

While stock markets lacked direction, crypto markets started the week on a positive note. Bitcoin is rising again and seems to aim for the $60k level in the next few days. The intraday low of $50k which was briefly touched last week, looks like a distant memory by now.

$BTC

From “just the tip” to strong release. pic.twitter.com/SgltO7yLXe

— The Wolf Of All Streets (@scottmelker) March 29, 2021

Furthermore, the fact that people are HODLing again is interpreted as a good sign.

Exchange outflows have increased this week, indicating market participants are moving crypto assets into cold storage or private custody. Private-wallet custody typically indicates a pattern of longer-term holding.

Data firm TradeBlock explained.

Archegos

Front pages of both the Wall Street Journal, The New York Times (business section), Bloomberg and the Financial Times all featured the same story yesterday. In a move that has spooked investors as it reflects the setup of the 2007-2008 financial crisis onset, a hedge fund called Archegos was apparently forced to sell big blocks of shares without buying any at the same time.

The majority of the move took place at the closing bell on Friday, probably hoping that no one would notice, but the selling has since intensified. As the stock markets are so vast, one hedge fund selling its position is unable to move it, but certain stocks are clearly touched.

As markets digested the fallout of Archegos’s collapsed bet on stocks, bankers and investors were left wondering: why had banks bent over backwards to deal with a hedge fund manager with such a chequered history? https://t.co/oCEBaYogy6

— Financial Times (@FinancialTimes) March 30, 2021

The fund, led by Bill Hwang, was for example heavily invested in ViacomCBS and Discovery. ViacomCBS finished Friday down 26.65%, while Discovery plunged 27%. On Monday, it appeared that Mr Hwang had also bet on Credit Suisse and Nomura, which suffered double digit losses as well. Both banks are quite important for their respective countries of Switzerland and Japan with the Japanese government admitting it was monitoring the situation.

(3/3) dodged a bullet in not having Archegos as a client. Meanwhile Wall Street buzzing about whether @CreditSuisse CEO Thomas Gottstein will survive losses ties to Archegos after losses the bank incurred earlier due to the implosion of Greensill Capital $GS $JP

— Charles Gasparino (@CGasparino) March 29, 2021

Credit Suisse commented in a note to investors that:

A significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks [and] following the failure of the fund to meet these margin commitments, Credit Suisse and a number of other banks are in the process of exiting these positions.

The #Archegos drama involves a classic mix of massive leverage, concentrated positions, derivative overlays, forced deleveraging and distressed sales
Pain has been felt so far only in a handful of stocks.
What happens next depends on remaining sales and related contagion channels pic.twitter.com/aErUVylki7

— Mohamed A. El-Erian (@elerianm) March 29, 2021

Analysts see two possibilities: the fund is working on margin trades and has to cover a losing position (for example it got forced to cover a short squeeze) which makes sure it needs funds or, and this is the worrying part, the trader knows that the markets are about to sell off and chooses to be first. As the old market adage tells you, there are only three ways to win in this business, be first, be smarter or cheat.

Primakov / Depositphotos.com