CryptoBits: More Sideways Price Action, Vols Contract Further

Written by
Adam Farthing

Published

October 24, 2022

Key Takeaways

• Another quiet week with BTC mostly inside $18,700 to $19,700 and ETH inside $1260 to $1360

• DOT, ADA and SOL testing May/Jun lows

• BTC hash rates continue to make fresh highs as miners battle to stay afloat

• Vols continue as gamma continues to underperform

• Decent sized pins for quarterly expiry this Friday may free things up next week

• Markets await US tech earnings, US GDP and ECB this week, then Fed on 02 Nov


Looking back

Spot has been very range bound over a quiet last week. BTC and ETH have been gyrating around $19,000 and $1,300. We did see some fresh lows in DOT and ADA, but price action has not been very inspiring. More interesting is the fact that with volumes very low, open interest in futures markets is getting quite high, indicating the presence of higher levels of leverage in the market, perhaps encouraged by the recent very low levels of realised volatility.

Our flows have been rather balanced in the majors, and we have had better buying of ADA and SOL, and better selling of DOT and EOS. By region, EMEA have been strong sellers, and APAC strong buyers. By category, our better buyers have been exchanges and retail brokers, while banks have been better sellers.

Flows have been rather balanced in the majors, and we have had better buying of ADA and SOL, and better selling of DOT and EOS.

Futures basis remains unchanged, with 3 month basis for BTC around +1.5% annualised, and for ETH around -2.5%. As noted above, despite the lack of movement in basis, open interest is high and rising, indicating increasing leverage in the system.

Implied vols have continued to drop, with the quarterly (28 Oct) expiry currently trading around 42% for BTC and 54% for ETH. At these levels it is still tough to break even trading long gamma, as realised is trending around 10 vols lower than implied. Options for 04 Nov expiry, which includes the Fed, are trading a lot higher, implying a different vol regime next week. Given the large open interest rolling off on 28 Oct for the $19,000 and $20,000 strikes in BTC, and $1,300 and $1,400 strikes in ETH, it is quite plausible that the market will have less gamma next week, and this could enable a range break in spot.

Looking ahead

This week we have some key US tech earnings reports, which will be scoured for signs of weaker top lines, which would be taken as signs of softening pressure on inflation. Additionally, we have US GDP and ECB MPC on Thursday, and BoJ on Friday. In reality though, the market is very focussed on the Fed next week.

By category, our better buyers have been exchanges and retail brokers, while banks have been better sellers.

By region, EMEA have been strong sellers, and APAC strong buyers.

All data sourced from our real time systems supporting global 24/7 crypto liquidity provision

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