Key Takeaways

‍• After slight weakness mid-week, crypto collapsed on Friday

‍• Lows so far are $20,750 and $1,525

‍• Futures basis is lower in BTC, but slightly higher in ETH in annual % terms

‍• Options imply that ETH traders are still very much focused on topside

‍• On Friday, we have Core PCE inflation data, and Powell speaking at Jackson Hole

‍• Market expects PCE to confirm US inflation has peaked.

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Looking back

This past week saw both majors falling to monthly lows around $20,750 and $1,525, following rumours going around the market of further credit issues and insolvencies while positioning long liquidations saw an abrupt sell off. Last Wednesday’s release of FOMC minutes showed that the Fed continues to be concerned about inflation and hinted they might not slow the rate of hikes anytime soon.

BTC and ETH had previously marked out strong resistance just north of $25k and $2,000, while ETH/BTC similarly failed at the key level of 0.08, all of which have now become levels of strong technical resistance. The biggest move came on Friday, where liquidations caused ETH to tumble from $1,850 to $1,600, and BTC to drop from $23k to below $21k in less than 24 hours. In thin weekend liquidity, ETH fell further to lows around $1,525 while BTC bottomed at around $20,750.

This week’s flows show a continuing trend of stronger buying bias across all 3 regions, with APAC taking over from EMEA as the strongest buyer. As with all Merge-related news these days, we saw ETH reclaim the top spot from BTC after facilitating the most flow with only a slight buying bias. We saw a stronger buying bias in BTC as our clients took the chance to buy the dip, with relatively balanced flows in SOL, XRP and LTC. Notably, DOGE was the third most traded coin with a slight buying bias as retail activity picked up in meme-related coins and stocks. Lastly, we saw the strongest buying bias from retail while funds and family offices were better sellers.

ETH futures basis is still in play ahead of the Merge. With spot down roughly 15% on the week, September futures are still trading around $17-18 discount to spot, slightly tighter in USD/ETH terms; but slightly wider in annualised percentage terms of around 9-10% on the more liquid futures exchanges. BTC futures basis is marginally lower in line with the spot move, with 3 month basis down 1.0-1.5% to around 1.0% on major exchanges.

In options markets, the notable point has really been the lack of movement in ETH vols and riskies which - given the size of the sell-off - indicates that the market is much more concerned about the topside these days. ETH is down approx 15%, yet gamma options are up from 80% to 95%, and Sept and Oct vols are up around 10 vols to 105%. Even more tellingly, ETH put skew are unchanged on the week, with Sept 25del r/r trading around 4 vols puts. BTC Aug vols are up from 60% to 75% on a 10% spot move, with risk reversals up from 4% to 12% for puts, which is much more in line with the spot vol correlation we saw during the large price declines in late Q2.

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Looking ahead

This week macro traders will all be focused on events later in the week, with US core PCE data published and Powell speaking at Jackson Hole, both on Friday. We are at an interesting moment, for the market appears to have sold off due to either positioning, or fears of more rate hikes. Yet the data out later this week may confirm the worst part of the inflation spike is behind us. So in a way, we would expect some of our faster moving money to use this as an opportunity to enter length.

Data apart, the market will presumably be looking for signals that this dip in price action is stabilising, and that will take time. Until then, with short term upward momentum lost, it may be a somewhat slow week - until Friday. Closest key support levels are currently $20,750 and $1,500 in BTC and ETH respectively.

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