Flow Analysis

BTC made fresh ATHs early last week, and traded up to 69k on Wednesday after the US CPI print, but could not hold gains for long and suffered a short sharp selloff back to below 63k the same day; and since then it has been banging around mostly between 63k and 66k. ETH also made fresh highs around 4,867 early last week, but seemed to do better on the selloff late Wednesday. In any generalised selloff, ETH would normally be expected to move further than BTC, but this time it dropped the same as BTC in percentage terms, around 8.5%, and the uptrend still looks and feels intact. LTC broke up sharply last Monday, and rallied from $200 to $300 in two days; during which time we have seen an enormous pick up in activity and good flow on both sides. Other coins have largely been consolidating after earlier high prints. In general, the market feels quite well behaved. Given we have recently been printing ATHs, the level of actual volatility seems quite low, relative to previous occasions when crypto markets have been making fresh highs.

Flows have again been largely positive. Our charts list coins in order of volumes we have traded over the week, so one can see that our top three coins in terms of volume (BTC, ETH, LTC) all showed a buying bias. ETH (56.8% buyers) was again favoured over BTC (51.1% buyers), continuing a trend we have noted for a couple of weeks now. LTC flows were 55.9% buyers, and we saw profit taking on longs particularly in DOT (69.9% sellers) and XTZ (77.6% sellers). In terms of client category, family offices were the standout buyers with 63.8% buy flow, with exchanges and OTC brokers also showing a strong buying bias, while banks were biased 55.2% to the sell side. Regionally, APAC accounts showed the strongest buying bias with 56.8% flow.

Open interest remains quite elevated in futures markets, around 25bn in BTC and 12bn in ETH, but volumes are considerably lower than they were while the market was around previous ATHs during April/May this year. Futures basis dropped considerably during the sell-off last Wednesday. ‍For example, Okex Dec BTC basis dropped from around 22% to 16% annualised, and the equivalent measure on Deribit dropped from 19% to 12%. ETH basis moved similarly, and both have recovered slightly from intraweek lows. There is not much of a story here, but perhaps that in itself is the story: after a sharp sell-off like we saw on Wednesday, the market appears to have recovered its poise rather well, and volatility has not been the spoilsport it has been so often in the past. One could possibly even infer that today's crypto market participants are better at managing position sizing and leverage than they were in the past.

In crypto options the story remains mainly about a large risk premium - with implied vols still pricing in a much more choppy environment than we are currently experiencing. Clearly, the market wants to hold on to its long position in call options, showing that there is still a strong belief that crypto can push higher in the next month or two. Yet marketmakers are also happy sitting short these options as gamma is underperforming implied vols considerably. It is worth noting that realised BTC volatility over the past month has dropped below 60%, while Dec ATM options are still trading at 81%. ETH vols have continued to dip a little further, with Mar ATM trading 114%, down 4 vols or so, and the all important Mar 15k strike at around 128% value, down a couple of vols on the week.

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