Early last Monday morning SOL spiked from $10 to $12, and from that point on there was always a feeling that the market might be a little thin on the offer side. Even as the market eagerly gobbled up and regurgitated rumours and ‘news’ regarding DCG/Genesis and the Gemini funds, this did not translate into negative price action. ISM manufacturing data earlier in the week showed a continuing contraction in activity in December, raising expectations of a shallow recession, causing risk to stay bid despite the Fed minutes still reading relatively hawkish at face value. And US payrolls also contributed, with good job numbers, but lower wages, giving some hope to those who believe the Fed may pivot to a more dovish stance soon.
Though last week, BTC rallied 2% to just below $17k, while ETH rallied 6% to touch $1,275. SOL was of course the big performer, up 35% or so on the week, and a whole raft of mid-cap coins added 5-10% over the course of the week, while XRP missed out, ending the week unchanged, presumably as the market waits for news on the SEC ruling. Then on Monday morning in Asia, the whole market took a material leg higher: BTC +2%, ETH +4%, LTC +8%, SOL +19%, ADA +13% being the more notable moves.
Regardless of how it’s broken down, our franchise flows have been fairly balanced over the past weeks, with some instances of notable sell flows. Looking at our client categorizations, we have almost all client types buying and selling in just about equal measure; retail brokers were the sole exception with a bias to sell. Similarly, while the Americas saw a slight bias to sell, across regions both EMEA and APAC saw good two way flow. Finally, in the coin breakdown we slightly more instances of selling within the otherwise balanced flows. MAT, BNB, and EOS in particular saw particularly heavy selling.
Interest rates have somewhat normalised in the majors, with crypto generally much cheaper to borrow now, especially as this week’s early rally has materialised. The standout point from last week was an incredibly deep discount for SOL perps which opened up before year end but persisted well into last week, with at some points shorts paying around 1% per day to hold their positions.
Implied vols have been crushed despite lingering concerns about DCG/Genesis, and in fact BTC and ETH vols now stand at historically very low levels. June BTC vol is currently around 52%, which is as low as it has been since the options market began back in the doldrums of 2018. And the same date for ETH is only 7-8 vols higher, which is quite cheap as a spread, so ETH also looks historically low.
However, there are 3 strong factors pushing vols lower. First, realised vols are very low, with 14 day realised for BTC and ETH in the mid-teens and mid-twenties respectively. Secondly, the option market is well supplied with vega, especially from new supply that hit the market during the holiday period, and with certain players reducing their footprint, perhaps the market does not take such flows so well as it used to. Thirdly, there are still very few who want to bet money on directional views: most players are still watching their backs for further credit issues, and consequently people are just not buying options like they normally would in early January.
Next week will be very focussed on inflation data from the US (CPI Thursday), as recent data has traders dreaming of a scenario where the economy keeps humming but wage pressures ease, perhaps more wishful thinking than reality.Still, the market is now pricing in a higher likelihood of 25bp than 50bp at the next Fed meeting on 02 Feb. Next week's CPI reading will be key to Fed decision making, and will probably have an outsized impact on asset prices. Expectations are for December prices to have risen 6.6% YoY, and for core CPI to be up 5.7%.
All data sourced from our real time systems supporting global 24/7 crypto liquidity provision
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