CryptoBits: Rally Extends on Relief at Fed Comments

Insights

Written by
Adam Farthing

Published

August 1, 2022

Key Takeaways

• After a wobble pre-Fed comments, crypto prices recovered and ended July strongly
• Powell relieved markets by stating future rate rises would be data dependent
• Resistance levels at $25k and $1,800 are holding so far; with cycle highs around $24,666 and $1,792
• ETH/BTC cross remains in focus, challenging key resistance at 0.073
• Futures basis is higher, possibly implying the return of retail participation
• Options markets have been active for BTC calls, and ETH vols remain high
• First major data since last week’s Fed rate rise this week, with PMI’s and then NFP announcements

Looking back

Crypto was volatile last week due to a nervy risk sell-off pre-Fed announcement, and then enjoyed a strong rally in the wake of Powell’s change of tune, confirming that future rate increases would be data dependent. ETH peaked around $1,792 on Thursday, and BTC topped out around $24,666 on Saturday.

Flow data this week shows that our clients had a continued preference to buy BTC over ETH. In other coins, we saw strong selling again in XRP, and strong buying in DOT, AVAX, and EOS. In terms of geographical breakdown, APAC clients were our better buyers, and EMEA clients were better sellers. Broken out by client category, we saw better buying from funds and banks, and better selling from crypto exchanges.

We saw continued preference to buy BTC over ETH. Strong selling again in XRP, and strong buying in DOT, AVAX, and EOS

Futures basis has finally moved, after a long period of flat-lining. BTC basis has risen from 1.25% to 2.25% at the 1 month tenor, and from 1.75% to 2.75% at the 3 month tenor, driven primarily by BTC borrow demand waning. On the OTC lending side, altcoin lending supply has begun to pick-up again, and stablecoin borrow demand has begun to return.

Options markets have been quite interesting again.  BTC vol was predictably pumped going into the Fed with the curve flat at 75%, but sold off hard afterwards as a seller of Aug $25k calls sold aggressively into the spot rally, pushing 1 month IV down to 68% in short order.  On Friday, with spot continuing to rally, and DOV auctions closing at the weekly lows in vols, a fresh buyer came in to buy the same Aug $25k strike, pushing Aug ATM vol back up to 73%, and Aug 25del r/r down from 7 to 5 vols for puts.  ETH vols have seen relatively less flow this week, although their standout feature remains the premium to BTC of around 25 vols.  

Looking ahead

Recently traders have been largely ignoring any economic data except price/inflation announcements.  This week will be different, and traders will be keenly watching for Manufacturing and Services PMI’s (Monday and Wednesday respectively), and Non-Farm payrolls and the unemployment rate (Friday).

Crypto bulls believe the buying (on the back of Powell’s pivot) has legs, and are looking for breaks of $25k in BTC and $1,800 in ETH, in which case, targets will be set at $28k and $2,300 respectively. Bears feel this recent bullishness is just a Powell-inspired relief rally in a bear market, and recent highs are technical failures, which will result in moves back to the old ranges in which we were active since mid-June.

The common denominator is that most market participants are trading tactically, and neither group is looking to position medium to long term, while the macro outlook remains difficult to read.

APAC clients were our better buyers, and EMEA clients were better sellers

We saw better buying from funds and banks, and better selling from crypto exchanges.  

About B2C2

B2C2 is a digital asset pioneer building the ecosystem of the future.

The firm has unlocked institutional access to crypto by providing reliable liquidity across market conditions. B2C2’s success is built on crypto native technology and continuous product innovation, making it the partner of choice for diverse institutions globally.

Founded in 2015 and majority owned by Japanese financial group, SBI, B2C2 Ltd is headquartered in the UK, with offices in the US and Japan. B2C2 Ltd is registered in England and Wales under company number 07995888 with its registered office at 86-90 Paul Street, London, EC2A 4NE.  B2C2 Ltd is the parent company of the B2C2 group of companies. Products may be provided by different members of the B2C2 group of companies, depending on the jurisdiction of the client and the regulatory status of the product and/or B2C2 group member. B2C2 is a registered trademark.

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