Key Takeaways

• Range broken to topside, support now at $45.5k
• Solid non-leveraged spot buying all week, suggesting long-term demand
• Futures basis rally implies leveraged (retail) money getting involved
• Long-term demand for ETH borrowing coming in ahead of Merge
• Gamma remains offered on rallies, DoV supply plentiful

Looking back

Crypto has had a strong week in general, with prices finally breaking out of the range to the topside late in the US weekend and spiking from $45k to $47k, to complete a 15% rally on the week.  ETH has moved in line with BTC; outside the majors, the star performer was ADA, up 30% on the week.  The  fundamental drivers were Treasury buying of spot BTC, a continuing de-sensitisation to geopolitical risk, and a feeling that risk assets have to keep going higher over fears the Fed will be unable to squeeze inflation out of the system without causing a recession, and a slowing of the rise in rates.

Our flows over the week have been surprisingly biased towards the sellside.  Regionally, all three centres were sellers, with both APAC and EMEA heavily weighted (>55%) to selling.  By coin, we saw better sellers in both BTC and ETH, as well as AVAX and XRP.  Buyers dominated our flows on ADA, LUNA, LINK, DOT and EOS.  By client type, the selling came from exchanges, banks and retail brokers, with buying from OTC brokers.  

Futures markets have told a much clearer story over the last week, with 3-month basis firming from 3.5% to 5.5% on major exchanges.  OTC lend/borrow activity remains generally low, though we are seeing some interest to borrow longer dated ETH now, ahead of the ETH2 Merge.

Vols continued to fall last week, as the market was grinding higher with only shallow pullbacks, meaning long gamma positions struggled to pay decay. Front end (1-week and 2-week) vols drifted down to the high 50s by the end of last week (from mid-70s post Fed), and over the weekend some options traded as low as 55 vol. Once spot spiked above $45k in Asia this morning, vols rallied and the curve was 64 flat. Only a few hours later, 2-week vol was back to 58, while June remained at 63. Clearly there has been no change to the market long gamma position. In vega however, we still feel there is interest to accumulate mid-curve (3-6 month) calls struck above the ATHs.

Looking ahead

‍This week, macro traders will be watching ECB speak on Wednesday, US GDP on Thursday, non-farm payrolls on Friday in addition to Ukraine headlines.  BTC is back to being a risk asset, albeit with some extra spice from its credibility as an inflation hedge.

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