CryptoBits: Long Liquidations Push Bulls on to Defense

Written by
Adam Farthing


March 6, 2023

Key Takeaways

  • Massive liquidations take BTC and ETH down 5%+ in minutes on Friday in Asia
  • Most mid-caps also down similar amounts; little movement since
  • Silvergate Bank essentially now out of the crypto business
  • Futures basis softer all around, though term futures continue to trade at premia
  • Vol market remains soft despite short-lived bid for gamma during sell-off
  • Fed Beige Book testimony and NFP data key this week

Looking back

On a week in which there was little macro data out, the main event was a long liquidation during the Asia morning on Friday: in a matter of minutes, BTC dropped from $23,400 to a low around $22,000, before settling into a low volumes, tight range between $22,200 and $22,500.  The week had been dominated by negative news about SIlvergate Bank, but this news had been brewing for months, and most large market participants should by now be prepared to go on trading without Silvergate.  So while the drop could conceivably be connected to the SIlvergate news, one can not be sure.

Bearish sentiment could also have emanated from global macro, with US rates peaking last Thursday at 4.94% in the 2y, a fresh 15 year high. In any case, the fact is that both BTC and ETH dropped about 5% on the week, and most of the mid-cap coins did largely the same.

Our client flows have shown a huge preference to buy BTC (53.6%) over ETH (48.6%), strong buying of ADA, DOG, LINK, and strong selling of SOL, AVAX, and DOT, amongst other lower volume coins.  APAC has again been the marginal buyer of the week, with Americas and EMEA clients more mixed.  By client type, buying came from banks, exchanges, and OTC brokers, in that order.

Preference to buy BTC over ETH, strong buying of ADA, DOG, LINK, strong selling of SOL, AVAX, and DOT

Perps basis moved lower on Friday into negative territory from which it has yet to recover; BTC and ETH perps are trading 4-5bp below spot.  Term futures basis is also lower in general by about 2% annualised.  March and June futures for both BTC and ETH are currently in the region of 5-6% annualised premium to spot prices.

Implied vols have continued their decline from the previous week, with March BTC atms in the mid-high 40’s, down from highs close to 60% a couple of weeks ago while spot was testing $25k. ETH vols remain priced quite tight to BTC, at only around 5 vols premium across the curve, which may prove an opportunity to some looking to hedge risk over the Shanghai upgrade, scheduled now for the first 2 weeks of April.  While short dated options did find a bid during the spot collapse on Friday, it was short-lived; and back end vols hardly flinched, demonstrating again that there is little in the way of incremental demand for options as spot moves lower, or in other words, the market is way less concerned about structural downside risk than it was during 2022.  BTC gamma contracts are still showing a premium for puts over calls, as are ETH options across the curve, but spot/vol correlation in both assets remains positive, so after the liquidation event was finished, ad spot sat at lower levels, the market was quick to sell options.

Looking ahead

It’s payrolls week again, and last month was a huge one.  This month consensus calls for a headline of 215k new jobs, but with recent inflation data showing clear signals of a re-acceleration, and rates pushing higher, one feels that another big number would be difficult for risk in general.

Before that, we have Fed chair Powell testifying before Congress on Wednesday, which should contain important clues as to Fed thinking about the economy and speed of rate hikes over the coming few months.  Additionally, on Friday, we have the last BoJ meeting to be chaired by Kuroda san, who likes to surprise markets, so watch out for a potential widening of the band within which JPY 10y rates are allowed to trade around their target.  

For crypto, all eyes will be on technical support levels below: short term is the $22,000 level, touched last Friday, but below that is a key support level at $21,500, which was a high in November pre-FTX, and a low in February.  Below there, things would open up a little; $18,500 could potentially become the target.

Buy/Sell Ratio by Category

Buying came from banks, exchanges, and OTC brokers, in that order.

Buy/Sell Ratio by Region

APAC has again been the marginal buyer of the week, with Americas and EMEA clients more mixed

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