BTC spent most of last week consolidating in a 56/59k range, but broke lower in the London afternoon on Friday to hit an interim low of 51.6k. On Saturday in Asia, we broke 51.5k and traded quickly to 49k over a 15 minute period, and then crashed to 42k within less than 10 minutes, before recovering just as quickly to 48k. Since then we have traded a 48k/50k range. When looking at our net flow chart, it's hard not to notice the series of lower highs and lower lows we have had over the past month, and conclude that we are now in a downtrend.
ETH outperformed again, with the cross rallying from 0.078 to 0.082 during the most intense part of the sell-off, and since then continuing to 0.085, a fresh ATH. ETHUSD sold off initially just below 3500, but has since traded as high as 4200 - which is where it was trading on Saturday morning before the crash. This was a marketwide event, and plenty of coins are now trading more than 50% below recent highs: LTC, DOT, DOGE, ADA, LINK, EOS, XTZ. On the flip side, besides ETH, L1 protocols have looked better supported, for example LUNA and SOL, which are down respectively only 16% and 25% from recent highs.
For the second week running, our flows showed better buying of BTC (52.9%) than ETH (49.5%). Outside the majors, we saw strong buy flow in BCH, XRP, and XLM; and heavy sell biases in DOT, LINK, DOGE, BNB. Broken out by category, exchanges have been the strongest buyers by far, with funds and family offices marginal sellers. By region, our EMEA clients have been strong buyers, with no strong bias elsewhere.
Implied interest rates in cryptoland have taken another leg lower over the weekend, with the 1 month annualised basis generally dropping from 6-7% to 2-3% on most exchanges. During Saturday’s spot lows, the basis temporarily moved heavily into negative territory across the curve before normalising above zero within a few hours. This behaviour is common on abrupt spot moves because in addition to forced liquidations, the high liquidity in futures contracts is used to take levered directional bets, meaning the basis component becomes a secondary consideration until spot stabilises.
In options, vols are higher, with both BTC and ETH vols higher from last week by 4 vols at the 1-month area. During the sell-off, the vol curves actually went well into backwardation for the first time in a while. Though not significantly changed since the spot sell-off, skew remains well bid for puts, with Dec 25 delta risk reversals trading puts at 5 vols in BTC and 8 vols in ETH. ETH riskies were well bid for puts even in the back end, due to the market dumping March 15k call strikes. That strike traded down to around 127 vols , a low print since the position was first opened. Overall the options market is telling us there is significant demand to hedge against further moves to the downside, with riskies bid for puts out to June’22 in both BTC and ETH.
Overall, the crypto market feels quite deleveraged, having had a big stop-loss move over the weekend, with basis already at low levels, and with options vol and skew already at relatively rich levels. However, the issues for crypto may come from other markets this month, as Powell and the Fed turn around the ship and work toward curbing inflation with tighter policy. Equity markets in particular could have a lot further to fall, and it's hard to see crypto not going lower in that environment.
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