• Without a catalyst event, we expect markets to remain range-bound
• Flow data shows buying moving away from BTC to ETH and weaker altcoins
• Fund managers, especially in APAC, were buyers; banks were balanced and all other client types had a slight sell bias
• While markets watch the size of the expected ECB rate rise on Thursday, the focus will be on Friday’s US CPI number to see if inflation has peaked
As has become the norm in crypto markets of late, price action this past week has been fairly muted, and volume even more so. The one price move of note came early last week when BTC and ETH both rallied sharply by about 10%, to then retrace to around the $29.5k and $1,800 levels. During today’s EMEA session, we’ve once again rebounded to $31.5k and $1,900 levels. While there have been minimal gains, this market is languishing; without a catalyst to the upside, current sentiment is likely to keep prices range-bound, with some clear and immediate risk of a break lower.
Our flow data for this past week indicates strong interest in buying the dip in battered coins. ETH, a notable underperformer the previous week, saw outsized buying (56.8%) compared to its fellow major BTC, which experienced very balanced flows. A number of alts, such as DOT, XLM and AVX, saw strong buying as well, despite less than impressive price action over the past week. Much like the previous week, APAC continues to be a strong buyer (63.0%), especially funds. Banks saw as much buying as selling, with other client types displaying a slight sell bias.
On the rates side, the June futures basis in BTC has picked up to the 4% range, while longer-dated basis is flat on the week, giving no indication that this move higher is anything other than a move within an established range. Altcoin perps basis remains choppy and expensive to short during down-moves in spot prices. However, we are seeing slightly better demand to borrow stablecoins, indicating that some traders may be looking to accumulate risk at current levels.
Across all tenors vols are getting crushed, likely owing to the lack of realised volatility. In BTC, ATM vols are down 3-6 vols across the board, with 6-month vol going from 70 to 67, and 1-month vol falling from 69 to 63, while ETH 1-month is down from 85 to 77. Interestingly, back-end ETH vol experienced a sizeable mid week rally, starting at 83 vols before dropping to a low of 77, then rallying back to 82 by the end of the week. Despite the slow market, participants don’t expect this environment to last and have been happily picking up some ETH vega on the cheap. Overall though in options land, the risk is still priced to the downside for ETH, with front-end and back-end riskies trading 15 vols and 8 vols for puts respectively. Although front-end riskies have come off a little in BTC, from 20 for puts to 16, we are seeing persistent bids for put options giving a clear indication of sentiment across all assets.
Assuming crypto markets don’t depend on Boris Johnson remaining in power in the UK, then the two major events of the week will be the ECB rates decision on Thursday, and US CPI numbers on Friday. No change is expected from the ECB, but the market will look for guidance on the size of the rate increase projected for July (50 bps will surprise the market). US CPI is the really big data point this week and a further softening of year-on-year inflation will give the market hope that it has peaked, boosting risk sentiment.
Outside of the macro risk, crypto traders will remain on the lookout for three things:
• Skeletons in the closet after the LUNA collapse;
• Signals that current ranges - BTC $28,000-32,750 and ETH $1,700-2,100 - may break;
• Anything new from Consensus in Texas at the end of the week.
If we don’t see any of these, expect more of the same sideways trading.
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