Major crypto markets have gone sideways over the past week, although we have seen some periods of high volatility and low liquidity, especially on Thursday, when BTC and ETH bottomed out during the Asian afternoon at $34,300 and $2,300, before squeezing 15% and 19% respectively by dinner time in London. Unsurprisingly trading volumes were extremely high on Thursday (highest BTC futures volumes since the 4th December 2021 flash crash) but this doesn't change the fact that BTC is currently just another risk asset, in lock-step with equities. Within the crypto ecosystem, risk aversion continues to manifest itself in the outperformance of BTC versus almost everything else. The outlier has been LUNA, which has rallied from $50 to touch almost $80 over the past few days, as is often the case as traders move to stablecoins (Terra USD), thereby burning LUNA and reducing supply.
Our flows show that we have again seen better buying of BTC relative to ETH. Our customers have mainly been on the buyside over the past week, which is interesting in itself, and we have seen a strong bias to buy LUNA, AVAX, ADA and SOL. Regionally, APAC clients have shown the strongest buying bias and, by category, our best buyers have been funds, banks and crypto exchanges.
The lend/borrow business has remained quite slow, as one might expect, and futures basis has dropped a little in the longer tenors. While the basis around 1-month remains between 0-1%, the 3-month basis has dropped about 2 percentage points to about 1% on major exchanges.
Implied vols have had an active week, initially rallying after a volatile Monday, with March ATM vol rallying to just shy of 70%, before dropping back to the low 60s, and then trading up to the high 70s on Thursday with a huge intraday range. Towards the end of the week, vols dropped back to their support level in the low 60s basis March ATM, but were up into the 70s again this morning, in response to Russia being partly cut off from the global financial system. Interestingly, put skew has softened, despite all the uncertainty, indicating that we may be close to a turning point for BTC particularly. It would not be surprising to see BTC de-link from risk and start trading more like one would expect a supply-capped, credit risk-free, digital bearer asset to trade in a scary geopolitical environment threatened by inflation and a flattening yield curve.
Outside of the Ukraine situation, the macro indicators this week will come from US and China PMIs, Powell’s speech and, of course, non-farm payrolls on Friday. But with the war in Ukraine going on, and tough sanctions being levied against Putin and Russia, one can expect a fairly bumpy road regardless of macro factors.
In summary, we note a few indications that BTC may be at - or near to - a turning point. The price action on Thursday implies the market position may be a little too short. The fact that longer-dated futures basis is lower again indicates another leg lower in net length. And the fact that put skew is not trading near the recent highs indicates the market may be starting to worry about being underinvested in BTC.
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