Key Takeaways

• ETH potentially leading crypto out of the doldrums

• After a sharp 60% rally, ETH has settled into its current range of $1,450/$1,650

• We saw very good volumes in the ETH/BTC cross, which remains near recent highs

• BTC ground through offers in the $23k's range, dragged up by ETH, before touching a high of $24.2k

•  Weakness this morning in Asia brings doubt to fresh bulls

• ETH vols outperforming BTC as call buyers dominate

• Macro traders look forward to the Fed announcement on Wednesday

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Looking Back

Since Tim Beiko announced a possible date in September for the Merge, the market has been primarily focussed on ETH, which has led most crypto assets higher.  In round numbers, ETH/BTC is up about 25% from 0.055 to 0.070.  BTC finally broke up above the $23k resistance level last Tuesday, but above this level it was always going to be a grind, as if there were good offers all the way.  BTC touched  a high of $24.2k that day, but since then has struggled, making successive lower highs.  This morning in Asia we have seen weakness, and BTC has dropped back to its support level at $21,800, while ETH remained just above $1,500.  The next move will probably be key for overall direction this week.  

Flow data this week shows that, in spite of the price action, we have seen a slight preference to buy BTC over ETH.  While we have had a large amount of flow in the ETH/BTC cross, the flow data would suggest that our flows were short term traders taking advantage of short term market direction.  In other coins, we saw strong selling in DOG and XRP, and strong buying in BCH, ADA, UNI, BNB, and XTZ.  In terms of geographical breakdown, EMEA clients were our better buyers; broken out by client category, we saw strong buying from our bank clients.  

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Futures basis still gives few clues, with 1month basis remaining around 1%, and 3 month around 2.5%, on major exchanges.  OTC lend/borrow markets remain quiet, although it is worth noting that it is much harder to source ETH borrows, as was expected, as we move towards the Merge.  

In options, once again the dominant moves and flows have been on ETH.  Vols have been trading at a large premium (20-25vol) over BTC vols since the move started, and when risk reversals also moved into positive territory for the first time in a long time, bullish traders took advantage by buying bullish December structures.  The biggest trades to go through were $2,500/$3,000 and $2,600/$3,000 call spreads, and $2,500/$3,000/$3,500 1x2x1 call flies.  It's a long way away, but keep in mind the possibility that we might see vols go well bid through $3,000, if we get there in the next 5 months.  

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Looking Ahead

From a macro perspective, this week will be primarily about the Fed rate decision and policy statement on Wednesday. In addition traders will also keep an eye on US equity earnings reports, notably Google and Microsoft on Tuesday, Meta on Wednesday, and Apple on Thursday.  The recent bout of USD strength will be in focus, for how it has negatively impacted earnings.  

After the unexpectedly high CPI print 2 weeks ago, the market has been toying with the idea that the Fed might raise rates by 1.0% instead of the expected 0.75%.  Even if Powell sticks to 0.75%, the market will focus on his language in trying to read for clues about what he has planned for September.  Either way, this is going to be a huge event for global macro.  

For crypto, we’re not so sure.  After the CPI print, the market rejected the downside quite firmly, indicating perhaps that it was a little sold out at around $20k and currently the market is sitting at a tricky level.  The market looked to be breaking up out of the ranges it had been in since 14 June, but further weakness now, to below $2,1400 in BTC and $1,475 in ETH, could confirm these breakouts were just fake-outs.  

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