Flow Analysis

After the low volume week we saw following Christmas, the BTC $45.5k/52.0k range broke down quite dramatically, with BTC cratering through the $45k level to where it now rests at around $41-43k. ETH was similarly hammered, breaking down through the $3,700 level it seemed to be holding until about halfway through the week, to $3,000-3,100. This selloff wasn't contained to simply the two major pairs though: much of the market, such as LTC and DOT, experienced a sharp downturn of their own, before clinging on to some resistance. Time will tell whether these new levels are broken down further, or if they’ll serve as a launchpad the market can use to claw back gains. However, given how aggressive this recent move has been, the risk certainly feels more pronounced on the downside.

Our flow data indicates that the retail strategy of just buying the dip continues to hold strong, even in the midst of this latest selloff. The largest regional buyers have been in APAC, traditionally a very retail heavy region. The notion that retail is seizing upon this opportunity is bolstered by the strong buying sentiment we’ve seen from both retail brokers and crypto exchanges, with crypto exchanges, in particular, leading the way. Breaking things down by coin, there’s a fairly balanced flow for most coins, as retail buying offsets institutional selling. The notable outliers here are XTZ, where we’ve seen quite aggressive selling, and LNK, which has seen significant buying interest.

In rates, 3-month annualised basis retreated c.2% in relatively orderly fashion. The term structure followed suit, with the front-end of the curve tending towards flat basis - this has come to be expected in spot sell-offs as the perps lead the charge with a temporarily negative basis and periodic funding charges. This led to a pick-up in stablecoin borrow demand as some structurally long-term borrowers locked in at these depressed rates. BTC and ETH futures volumes made their month-on-month highs, whilst spot-adjusted open interest remained flat.

The selloff seems to have spurred some action in the options market, with implied vols reversing their recent downward trend. In BTC this is much more pronounced in the shorter tenors, with 1-week vols and 1-month vols up 7 and 9 vols respectively. On the other hand, the 3-month vols are up only 3 vols, with the 6-month up 4 vols. While short term ETH vols are up a similar amount, with 1-week vols up 6 points, the longer tenors have remained quite stable. 3-month ATM ETH vol is unchanged over the past week, and 6-month vols are only up a point. Unsurprisingly, for both BTC and ETH, the skew has flipped quite aggressively towards puts as paper looks to hedge its downside risk. ETH 25 delta 1-month skew has flipped from 1 point bid for calls to 10 points bid for puts over the past week, with BTC seeing a similarly aggressive move, going from 3 points for calls to 7 points for puts.

Following this past week's breakdown, the tone has definitely shifted bearish. Despite retail buying the dip, it remains to be seen whether there will be enough buying support from larger players to prop up the market, or if we’re in for another leg downwards.

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