Flow Analysis

By: Adam Farthing and Mark Jones

The Christmas rebound in crypto petered out on the 27th with BTC at 52k resistance, which now defines the top band of the current 45.5k/52.0k range. The ETH chart tells a similar story, with a range of 3600/4150 currently defining the market. Overall, volumes have been amongst the lowest of the year and liquidity remains quite poor. The stronger performers of the Santa Claus rally–AVAX, MATIC, and LUNA–have all held gains, whereas the rest of the market has generally given it all back.

Our flow data show crypto exchanges–and to a lesser extent, banks–as the standout buyers over the past week. That said, given the low volumes this week, the data may be taken with a pinch of salt. Broken down by coins, we saw a preference for BTC over ETH. We also saw good selling of DOT and good buying of XRP, ADA, XTZ, and BNB. Regionally, the better buying came from EMEA.

It was a quiet week for rates. The lowest futures volumes of the month brought about a 3-month annualised basis retreat of c.2% for ETH, and c.0.7% for BTC, despite similar percentage pullbacks in spot for both coins. Combined BTC and ETH open interest fell just over 10% on the week, but finished the year at c.$25.8, almost exactly 2x higher than where it started. Binance rose to take the number one spot at year-end, tripling YoY OI to 28% market share at $7.3bn across both coins. Somewhat surprisingly, CME BTC OI was dethroned this year as OI increased from $1.8bn to $3.2bn, despite the new Micro contracts release. The elevated relative basis seen on crypto-native exchanges for the majority of the year may explain much of this lagged growth.

Implied vols have continued to fall, with the back falling slightly faster than the front, flattening the contango, which has prevailed for some time. BTC vols are down roughly another 5 vols on the week with march atm trading 71 vols. Gamma has fared slightly better with 1-week vol more stable around 66 vols. ETH vols are lower by another 7 vols, with march atm now down to 80 vols.

Clearly, the market needs to break out of the current range, otherwise one would expect volumes to remain tepid and implied vols to fall further.

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