CryptoBits: Sideways Again, but Tail Risks Build

Written by
Adam Farthing and Collin Howe


December 13, 2022

Key Takeaways

  • Crypto majors sideways again in tight ranges
  • Alts took a hit late Sunday as rumours around Binance persisted
  • Basis and vols not giving much away, though risk reversals are better bid for puts
  • US CPI today, FOMC tomorrow; shock risk bias to downside

Looking back

Despite some sharp price movement over the past week, crypto has failed to set a solid new trend in either direction, with BTC bouncing off $16,750, but failing to clear $17,450, while ETH has been constrained between $1,220 and $1,300. With BTC bouncing between either side of $17k, that seems like the level to watch, as the market continues to grind through this crypto winter. With CPI and the Fed rate decision coming this week, everyone is likely sitting, waiting, with bated breath for those macro numbers to hit, before positioning for the longer term in the majors. In the alts there was some weakness near the end of the weekend on the back of some lingering concerns regarding Binance’s financial position.

Our flow data showed a clear sell bias across the franchise, regardless of how the data was looked at. By region APAC was the outlier with balanced flows, while Americas had a slight sell bias and EMEA with a much stronger sell bias. A similar story occurs when looking at the coin data with a select few seeing two way trading, like BTC, UNI and AVAX, but many others, such as MAT, XLM, DOG, and XRP, experiencing heavy lhs flow. Finally, all client categories were better sellers over the past week except for banks, which skewed slightly towards the buy side.

A clear bias to sell across most coins, with XRP, MAT, BNB and XLM in particular seeing heavy selling

Besides a short spike and retracement at the beginning of last week, the futures basis across major exchanges has remained steady. The 1 month basis got as high as 5% on some venues, before moving back into the -1% to -2% range. The 3 month basis experienced something similar, with a spike up to 1.5% giving way to stabilisation around -1% to 0.5%.

A slight mid-week vol crush punctuated what was otherwise a quiet week in the options space. Over the past week 1 month vols are about flat, with BTC at 52% and ETH at around 73%, as both markets clawed back some vols following the crush. The only notable moves from the past week are in the front end 25 delta risk reversals; the BTC 1 week risky has gone from 9% to 13%, and ETH from 5% up to 12%, with players potentially looking to protect themselves from the slew of macro events coming up.

Looking ahead

Binance liquidity risk is dominating crypto twitter right now, meaning traders are having to make contingencies against another large exchange failure.  Who knows whether anything will actually come of this, but it is certain to have an immediate negative impact on liquidity and general levels of activity in the crypto market.  

Other than the Binance situation, all eyes will be on macro events, with US CPI out today, then FOMC, BoE, and ECB all with rate decisions later this week.  Investors are expecting continued signals of lower inflation pressure, so the bigger market shock would probably come from unexpectedly high CPI numbers, which could push equities and crypto sharply lower.  

The FOMC meeting will be watched closely not for the rate decision itself - almost certain to be a 0.5% increase -  but for the dot plot which shows committee members expectations of where rates would be at the end of 2023.  The market is expecting peak rates half way through next year, but for the Fed to acknowledge that, would be somewhat surprising.  The recent slowing of inflation has arguably been made possible by very hawkish messaging, a strategy they would implicitly need to abandon, in order to signal to the market that rates will peak in six months time.  I suspect the risk here is also to the downside in risk assets, as the Fed again plays hardball.

Buy/Sell Ratio by Category

All clients besides banks had a pretty solid bias to sell

Buy/Sell Ratio by Region

Incredibly heavy selling from EMEA contrasts the balanced flow we saw from APAC

All data sourced from our real time systems supporting global 24/7 crypto liquidity provision

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