• Majors remain within well defined trading ranges
• Flow data show crypto exchanges were strong sellers
• Vols dropped significantly, curves regained contango, and put skew came lower
• Macro traders patiently await the main data for this month: Wednesday’s CPI
It has been another slow week, with the only notable moves on Thursday as BTC and ETH squeezed higher. BTC moved from $20.5k to $22.5k and ETH moved from $1,185 to $1,275, since then both have drifted back to the middle of their one month trading ranges. The ETH Sepolia testnet merge went ahead without incident; and strong US NFP, as expected, had a limited impact on markets, ahead of this week’s US CPI data.
Flow data this week shows that our crypto exchange clients have been strong sellers, while other client categories have shown no bias. When broken out by coin, we have seen better buying of ADA, DOT, EOS, and UNI, and better selling in DOG, XRP, and XLM. By region, we saw little bias either way.
Futures basis remains largely unchanged, with 3m BTC basis still around +1.5%, and 3mth ETH basis around 1.0%, on the most liquid futures exchanges. OTC lend/borrow activity remains thin, with interest predominantly in borrowing less liquid alts.
In options, the main event has been weakness in vol and skew. July call longs took profit into the spot strength late last week, and the vol market took it hard. BTC July ATM vol is down 11 vols to 68%, while in ETH July ATM vol dropped 13 points to 89%. Both vol curves have moved back into contango, as we suggested might happen last week. In terms of put skew, BTC July 25delta BTC r/r dropped 7 vols to trade at 9% for puts, and in ETH the equivalent spread dropped 9 vols to trade 11% for puts. The implication is that fear is subsiding, so some players are taking a more balanced view of the future distribution of spot returns, while longer term players continue to hold longer dated volatility to hedge against further market dislocations later this year.
This week will be all about US CPI data out on Wednesday: there really is nothing else to it. After Friday’s strong payrolls, the Fed will feel less concerned about more big interest rate rises, should prices continue to accelerate, so expect bond prices to drop sharply if that happens. The market is expecting 8.7% (+0.1%) for YoY CPI, and 0.5% (-0.1%) for MoM “core” CPI. Any variation is likely to see an immediate market impact.
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