Crypto Recovers on Short Covering; ETF Flows Turn Slightly Negative

Written by
Freddie Flinn & Adam Farthing


January 30, 2024

Monthly Roundup

11 spot BTC ETFs were approved on Jan 10th by the SEC, see our thoughts here. The top 5 new funds (exc. GBTC) by AUM stats are below as of 30/01/2024. Fees post waiver.

Source: Blockworks
  • Named crypto trading counterparties include B2C2, Cumberland DRW, FalconX and Flow Traders.
  • Authorised participants include JP Morgan, Goldman Sachs, Jane Street, Virtu and Cantor Fitzgerald. ​​​​

GBTC was converted to an ETF on the same day but maintained a 1.5% annual management fee. Grayscale remains the largest crypto asset manager in the world by some distance but has seen holdings fall from 619,000 to 496,000 bitcoin with many investors taking advantage of the opportunity to redeem at NAV or move into lower cost products. The FTX estate was responsible for selling 22 million shares (worth nearly $1bn) of GBTC.

Key News

Horizon Scanning

  • Jupiter, the leading swap aggregator on Solana, to airdrop its native token on 31st Jan.
  • January 2024 US CPI data will be released on 3rd Feb with Fed futures implying a 90% chance of rate cuts being no later than April month end. ​​​​
  • Bloomberg estimates a 70% chance of the SEC’s suit against Coinbase being dismissed by spring. Some market participants see this potentially removing headwinds for so-called ‘crypto-securities’ such as XRP, SOL etc. ​​​​

Crypto Recovers on Short Covering; ETF Flows Turn Slightly Negative

Key Takeaways

  • Crypto prices have recovered in lower volumes on short covering
  • ETF net flows turned negative last week; lower volumes on both sides
  • BTC up 13% to 43.5k; a 40% recovery of the post_ETF selloff
  • ETH recovery weak; ETHBTC down 8.5% from 0.058 → 0.053
  • SOL and AVAX both up ~25-30% from last Tuesday’s lows
  • Derivatives markets quiet, offering few clues ​​​​

Looking Back

The post-ETF selling pressure abated last Tuesday around $38,500 in BTC, and the whole market turned, pausing below the key $40,300 pivot point until Friday, when we finally broke back up, and exchange short liquidations have contributed to the move higher ever since. ETH has underperformed, rallying only 5% from the lows, while BTC rallied 13%, and higher beta coins such as SOL and AVAX have recovered around 25-30%.

US ETF flows became net negative last week, as outflows from Grayscale ($2.2bn) outweighed fresh money moving into the newborn ETF’s ($1.8bn). It is worth noting that outflows from Grayscale do appear to be slowing, but at this early stage it remains hard to infer much information from such a limited dataset.

Our own flows have generally biased to the buy side: buyers made up 60.2% and 56.1% respectively of BTC and ETH flows. We also saw strong buy-side bias in XRP (65.5%), DOG (61.1%), DOT (64.4% and MATIC (70.8%) amongst others.

Preference to buy BTC over ETH.  Generally, strong buying of alts.​​​​​.

Futures markets have remained quite quiet over the week, with little movement in basis on front end contracts on either Binance, Deribit, or the CME. On all 3 of those venues, front end BTC futures have traded at a fairly stable basis of 8-10% annualised premium to spot. In OTC lend/borrow markets, we also see little fresh demand for leverage, despite the recovery in prices.

Options markets have been trading without much risk premium in the front end, with Feb BTC atm vols dropping from 46% to 40% last week, before recovering to 42.5% or so currently, whilst BTC realised vol is hovering between 40-45%. Risk reversals have recovered from 2-3 vols for puts to 2-3 vols for calls in the February expiry.

Looking Ahead

Macro traders will focus on the Fed meeting which concludes tomorrow. It is highly unlikely that any change will be made to rates, but traders will be on alert for clues about how the Fed sees the year ahead developing. Markets are pricing 5-6 rate cuts of 25bp this year, while the Fed has most recently signaled only 3 cuts. Recent data - CPI, retail sales, and GDP - have implied a slightly stronger economy, so if the Fed sounds hawkish, expect the market implied chances of a March rate cut (currently priced around 50%) to be dropped quickly. Traders will also be on the lookout for any potential changes in the pace of QT (reduction in Fed balance sheet).

In crypto land, as the wider market searches for a new narrative, traders are likely to remain focussed on analysing ETF flows, and the battle between Grayscale outflows and new money coming in to the newborn ETFs.

Retail brokers took the crown with 71% buy-side flow

APAC clients were our strongest buyers with 74% buy-side flow

All data sourced from our real time systems supporting global 24/7 liquidity provision

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