• Crypto maintained tight ranges for the week, as the macro outlook worsened
• In short periods, crypto outperformed risk quite noticeably
• Flows were biased to the buy side, particularly in larger cap assets
• Basis largely unchanged, and vols sold off, as realised vol continues to underperform
In a week where the macro outlook soured, one has to say that crypto assets showed relative strength, albeit not much actual strength. BTC peaked for the week on Tuesday around $20,380, while the world was busy looking for bids for GBP and gilts. At the same time ETH touched $1,400, though both majors have dipped back to trade within well defined ranges since. And those ranges were quite tight ($18,480 - $20,380 for BTC and $1,253 - $1,400 for ETH), which is really the point of the week: crypto was stable while macro worsened, with Putin becoming backed into a nuclear corner, the UK government weakening as it’s fiscal indiscipline brought on a near financial crisis in the pension industry, and fresh worries surfacing about the state of EU investment bank balance sheets.
Our flow data reveals a general theme of better buying than selling. BTC and ETH flows were both biased by around 53:47 in favour of buying. We also saw strong bias to buy in SOL, AVAX and EOS, while we saw better selling in XRP as holders took advantage of higher prices. Our strongest buyer by client type were retail brokers and funds, while banks were the only sellers by category. Regionally we saw equally strong buying from all corners of the globe.
Futures basis has continued to trade quite predictably, with BTC climbing slightly on 3 month futures from 1.0% to 1.5% annualised, while ETH futures continue to trade at a 1.0-1.5% annualised discount, although the ETH basis is a little noisier.
Crypto vols have been quiet, with the ETH curve selling off more, and flattening, which is unusual in a risk averse environment with gamma under-performing. One would normally expect the front of the curve to sell off faster in vol terms, as players wish to maximise notional cover per unit of gamma. However, clearly some ETH sell flows have gone through in December and March, and forward vols have normalised quickly. The ETH riskies are a better bid for puts too, up from 10 to 15 vols for puts in the middle of the curve, indicating that the selling was probably of call strikes, as length threw in the towel post-Merge.
This week, the cupboard is quite bare on data and events until Friday, when we will have US non-farm payrolls. In reality, however, macro traders will focus on EU banking worries, UK bond market and political action, and military developments from Ukraine, with Putin becoming slightly backed into a corner by military losses after his annexations late last week All of which could potentially cause ripples.
Crypto traders will possibly be watching for signs of de-correlation, where large cap assets outperform during bouts of risk weakness. The argument goes, that the worse things get, the more likely we are to see central banks choke, like the BoE last week. And if the market needs to price in a higher probability of that, then certain assets–which are good inflation hedges while at the same time are not anybody else’s liability–should rise in price quite suddenly.
All data sourced from our real time systems supporting global 24/7 crypto liquidity provision
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