Flow Analysis

By: Adam Farthing

A week ago today, crypto majors were testing critical levels, with BTC and ETH taking a quick look respectively below $40,000 and $3,000. The move turned out to be a failure though, and the story was written for the week. BTC settled into a $41k/44k range, ETH into 3,200/3,400, and others coins staged slightly more impressive recoveries, with ADA notable for the size of the recovery, from $1.10 to $1.50. Astonishingly, DOGE reacted 20+% to a regurgitated Musk tweet, before again giving it all back, completing a round trip from 17.5c to 21.5c and back.

Our flow data again shows crypto exchanges–and to a lesser extent banks–were the standout buyers over the past week, while family offices were better sellers. Regionally, the US were better sellers, while EMEA and APAC leaned the other way. Broken down by coins, we saw a bias to sell DOGE, LINK, DOT and BNB; and good buying of SOL, XRP, ADA, XTZ and EOS.

The rates market remained relatively quiet, with 1-month basis recovering from the lows around flat, to around 5% currently. We continue to see demand for OTC stablecoin loans, but at a significantly reduced duration, indicating nervousness about the medium term health of the market. Volumes and liquidity remain somewhat reduced from November levels, but unchanged on the week.

Implied vols reacted strongly to the failure to break lower, selling off hard. BTC gamma options have dropped 15 vols to 55, March ATMs have dropped 9 vols to 65, and June ATMs 6 vols to 69. The options market was clearly pricing in a large gap risk to the downside yet, strangely, risk reversals are much better offered now, even with vols lower, which means the downside risk is now much cheaper than it was a week ago.

The market is clearly rather directionless right now, and there is not much in the way of macro data out this week, so perhaps we’re in for another week of range trading. If we do see that, vols may continue to drop, which could bring about some interesting opportunities to get cheap leverage.

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