CryptoBits: Crypto Climbs the Wall of Worry

Written by
Adam Farthing and Collin Howe

Published

November 7, 2022

Key Takeaways

• Crypto continued to trade firm after a mixed Fed outcome, though majors are not the drivers

• BTC made a fresh high at $21,480 on the weekend, ETH, a marginal high at $1,667

• Alts drove much of the positive sentiment, with a number of fresh real world use cases:

        • Matic traded a high of $1.30, up from $0.85, on a tie up with Meta,

        • Solana rose to $38.75 from $31.50 on news of a partnership with Google Cloud

        •Litecoin rallied from $55 to $70 on a tie-up with Moneygram

• Over the weekend, majors fell after systemic crypto credit concerns surfaced again

• Concerns centered around the amount of FTT (and SOL) on balance sheet of Alameda

Looking back

Majors reacted to the hawkish Fed with another rejection of weakness, and various alts reacted strongly to positive idiosyncratic fundamental news items, adding to the previous week’s news about a potential tie up between Doge and Twitter. One has to say this is a market which looks and feels rather short, and rather sold out.

However, over the weekend, a document purporting to be the balance sheet of Alameda Research, a trading company owned by SBF, also owner of FTX, was leaked. This document implied that Alameda assets included billions of dollars worth of FTT, with a large chunk of that being loan collateral, and also quite a large quantity of SOL. Additionally, CZ of Binance tweeted that they would be selling the balance of their FTT holdings, earned during last year’s sale of their equity holding in FTX. The tweet also made clear that there is currently little love lost between these two, as they have clearly disagreed about the role regulators should play in the industry. The market is now asking the question of whether the value of the FTT collateral is really high enough for the loans it is backing, and if not, what would become of Alameda and FTX.

This week there’ve been some interesting buy side flows in our client franchise. Broken down by region, APAC and EMEA were strong buyers, although the Americas were much more middling. Looking at individual coins we’ve seen pretty consistent buying across the board, with DOT in particular standing out. Interestingly enough, DOGE had the second most volume out of all coins we offer, beating out ETH for the number 2 spot. By category, funds and banks were better buyers, while we saw much more balanced flow from all other clients.

While DOT was a notable standout, we saw healthy buying in many coins like BTC, ADA, and XTZ

Futures basis has tightened slightly again across the board, mostly due to increased dollar rates as the market looks to add length and reduce shorts.

Implied vols have been moving quite a bit over the past week in reaction to market moves on the spot side. December BTC vol made it as high as 54.5 following a weekly low of around 49 following some sharp price action Friday of last week. The front end BTC and ETH implied vol spread has blown out, getting up to a 27 vol difference up from 17. Following some late week rallies we saw risk reversals go better bid for calls, from -4 for puts to flat across front and mid curve, but this trend has reversed with puts now higher following the FTT/Alamada related FUD working its way through the market. Quite notably, the market saw large SOL options volume last week, which some sharp moves in IV in that coin. By the end of the week Dec SOL strangles were trading around 80 vol, but are well above 100 following this past weekend.

Looking ahead

The Fed again stressed that they would be very data dependent, and while the market is clearly pricing in much lower inflation next year, another high CPI print might be expected to cause risk assets to sell off. However, recent bearish news has been rejected by crypto markets, so the reaction function is not clear cut at the movement.

And despite the wider markets obvious focus on CPI as the week’s most important data point, given the public spat between the founders of the world’s two biggest crypto exchanges, it might just turn out that the most important numbers for crypto this week are the prices of two mid cap coins: FTT and SOL. Weakness below current levels, around $22 and $31 respectively, could signal a risk that crypto is facing another washout to the downside.

Hopefully that does not happen, and if not, it feels like crypto may manage another week climbing its wall of worry.

Mixed flow across brokers and exchanges was punctuated by healthy amount of buying from banks and funds

Incredibly strong buying out of both EMEA and APAC

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

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About B2C2

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