CryptoBits: Crypto Consolidates in Thin Liquidity; Awaits More Bankruptcies

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November 22, 2022

Key Takeaways

  • Spot crypto had a sideways week last week, BTC $16k to $17k mostly
  • On Sunday, the FTX blackhat started moving ETH in preparation to liquidate
  • As market digested this, majors dropped to key supports above $15.5k and $1,075
  • Exchange order books are thin, as contagion fears refuse to dissipate
  • Futures basis are very dislocated, with large “arbs” open between venues
  • Vols sold off last week as spot moved sideways, but rallied hard on the Sunday spot move
  • Expect vols to be very (inversely) correlated to spot for the foreseeable future

Looking back

Since the move to $18k upon CPI data, and subsequent retracement, BTC has been unable to recover $17k, and has been sitting quietly in $15.5k support.  The week has been characterised by thinned out order books and low volumes everywhere, hence the market has just moved sideways, while participants monitor Twitter for more bad news.  On Sunday the FTX blackhat started moving ETH around, presumably preparing to sell it, and ETH dropped 8% from 1210 mto 1110 over the next few hours.  BTC dropped 4% from $16.5k to $15.8k.  Since then we have flatlined again, sitting on key supports at $15,500 and $1,075 in the majors.  

Regardless of how it’s broken down, our flow data for this past week has our franchise selling hard. Across the different regions, Americas and EMEA had very lopsided selling flow, while APAC were surprisingly strong buyers. Breaking out by coin shows a more consistent narrative; there was a slight to strong selling bias across all coins, with the notable exception of ADA, and DOG which saw balanced flows with a slight trend towards the buy side. Finally, by category OTC brokers, crypto exchanges, and banks were heavy sellers, with a slight preference for the sell side in retail brokers.

Notable selling flows across almost all coins we offer. Only ADA, DOG, and BTC saw anything akin to balanced trading.

Futures bases have dislocated across various exchanges and instruments as order books have thinned out while players hoard liquidity in cash and ignore arbitrage opportunities in favour of long term survival.  CME futures are amongst the most deeply discounted of all futures, as TradFi players there tend to have no avenue to borrow physical crypto to sell spot.  Dec futures on CME are trading at an annualised discount of around 20% for BTC, and 25% for ETH.  On Deribit, Dec futures are around 8% discount to spot for both ETH and BTC.  On Binance, Dec BTC futures priced in USD are around 5% discount, and against Tether around 3%; and Dec ETH futures are around 6% against the USD and 4% against Tether.  

Implied vols topped out early last week with Dec ATM vol around 80% in BTC and 105% in ETH. Over the second half of the week, as spot order books continued to thin out, it became clear that without any one trading the market might just move sideways, and with most having covered shorts, vols dropped quite dramatically.  By the weekend, with gamma not realising, the BTC curve was back in contango, with 1 week vols trading 55%, and the curve topping out in the 2023 contracts around 67% - the pain trade.  With the spot move late NY on Sunday on rumours of DCG failing, vols of course went bid again, but the action was mainly in the gamma contracts inside 2 weeks, and quickly reversed, pending either more news, or a spot move through $15.5k and $1,075 levels.

Looking ahead

Crypto traders will be fixated on news and rumours of bankruptcies and/or capital raises coming across Twitter, as has been the case for the past 2 weeks. For those corporations in the spotlight, the clock is ticking, in that while no news is forthcoming, confidence in the market may continue to drain, taking prices lower, in turn making it harder to raise capital, if indeed that is what they need. That said, market sentiment is very weak indeed, which has often been a good indicator of local lows in crypto. Who knows? Maybe we’ll surprise everyone and see a Santa Claus rally to end the year. We can dream, at least!

On the macro front, we have a raft of data out on Wednesday, with UK and EU PMI’s, and then later on the Fed minutes, which traders will study for clues as to how the Fed will react to changes in inflation and the job market over the coming month. Given the rabid environment in crypto, however, one wonders whether these macro data can have much lasting impact on crypto prices right now.

OTC brokers, banks, and crypto exchanges were heavy sellers this past weekend, while retail brokers saw a slight sell bias.

Massive amounts of selling from EMEA and Americas, while APAC saw strong buying.

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

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