After a two month drift lower from $30k to $26k, during which the market had struggled with regulatory FUD, Binance FUD, interest rate FUD and the like, we finally got a piece of news which the market could view as bullish, and the price reaction was telling. BlackRock’s announcement of their application to offer a spot BTC ETF was warmly welcomed, and the general feeling was that BlackRock would not bother doing this unless they felt that, politically, they could push it through. As a result the market priced in considerable additional demand, pushing the market up from $26,500 to $30,500 in 24 hours from Tuesday to Wednesday last week, before a surge late Friday in NY pushed BTC to a 1 year high around $31,450.
BTC remains the dominant mover in the market, outperforming ETH by 5-6% during that rally, but BCH deserves a scarce mention this week, for having doubled in price to $220, supposedly on the back of being one of 4 coins (BTC, ETH, LTC being the others) to be listed on new institutional-backed exchange EDX Markets, which started trading last Tuesday.
Flows over the past week have shown a strong interest to buy BTC over almost all other coins, with 57.0% buy flow, compared to 54.9% sell flow for ETH. Elsewhere it was primarily sell flow which dominated the alts, with XRP, SOL, LTC, ADA, MATIC, DOGE, AAVE, and EOS all showing 60+% sell bias, and only AVAX, DOT, and BNB showing bias for buy flows. By geography, APAC were strong sellers, and EMEA strong buyers; by client category, OTC brokers and banks were our better buyers, while retail brokers and funds were our better sellers.
Implied vols reacted favourably to the spot move, the implication being that the market still wants to chase any moves to the topside by purchasing options to hedge against FOMO. As a result, the positive spot/vol correlation which has been a constant feature this year, has reasserted itself; risk reversals have moved back to a solid bias for calls, with Dec 25delta riskies 3 vols for calls, up from 1 vol for puts 10 days ago. July ATM BTC vols basically rallied from 40% to 50% before falling back to current levels around 45%, while December vols rallied from 45% to 50% but held those levels. In other words, the options market continues to favour vega over gamma, implying that participants are more committed to the idea of a longer-term bull market, than they are to an immediate sharp follow through to the topside in the short term.
We have a few inflation data points this week (Tokyo CPI, EU HICP, US PCE), but macro traders will be mainly looking for snippets of information from various central bankers speaking over the next few days, and then to the Fed next Wednesday.
The crypto market will be all about BTC this week though, with a very important pivot somewhere between $31,500 to $32,000. I would expect any dips to be bought, and vol to remain bid on rallies.
All data sourced from our real time systems supporting global 24/7 liquidity provision
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