• Last week was slow and range bound until Friday, BTC $21-$22k, ETH $1,500-$1,700
• PCE data came out much better than expected and market rallied
• Powell speech 90 minutes later began a huge sell-off
• ETH traded down from $1,700 to $1,500 by NY close, BTC from $21,800 to $20,100
• Weakness continued over the weekend, lows so far around $1,425 and $19,500
• Futures basis for BTC is lower by 1%, while Sept ETH futures are $20 below spot
• Options markets again demonstrate a lack of interest on lower spot prices
As we had opined might be the case, last week was slow and range bound until Friday. While ETH did show some upward momentum, grinding up from $1,500 to $1,700, BTC was firmly stuck in a very sideways $21-$22k range all week. As Friday approached, crypto traded with a weak tone, but when PCE data was released the market breathed a collective sigh of relief, and ETH rallied back to $1,700, and BTC back to $21.8k. However, Powell had clearly decided his priority was to regain credibility, and he was very hawkish, predicting that the US economy would run below trend growth rates for some considerable time while the Fed dealt with inflation through higher rates and withdrawing liquidity from financial markets. Asset prices in all markets sold off, and crypto was not immune.
Our flows over the past week again showed that our biggest volume was in ETH, where we had balanced flows, though in BTC our customers we net strong buyers, as with DOGE, MATIC and UNI. Customers were net strong sellers of SOL, XRP, LTC, EOS, BNB, DOT and XTZ.
Futures basis has dropped in BTC, as one might expect with the spot move lower; Sept and Dec futures basis both dropped around 1% annualised on major liquid exchanges. ETH basis remains in play ahead of the Merge, and September futures are around a $20 discount to spot, $2-3 wider on the week.
In options markets, the theme of the week remains the same: a lack of movement in vols and riskies on another down-tick in spot prices, although it has to be said, despite the large Friday move, we are not actually much lower than we were 1 week ago, and both ETH and BTC are well inside recent medium term trading ranges.
This week we have more important data, with Eurozone inflation data on Wednesday, US ISM manufacturing PMI’s on Thursday, and finally US payrolls on Friday. With Powell having taken the axe to asset prices, one suspects the market will be on the lookout for weak economic data over the next few weeks. If we see it, bond prices should recover, and the USD may stop rallying. Without it, things could get messy down below.
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