Key Takeaways

• Crypto held recent lows at $15.5k and $1,075 and rallied Tuesday
• LTC and DOGE outperformed on social media chatter
• Futures basis tightened considerably as shorts were unwound
• Vols and risk reversals had big moves lower, as realised vols dropped again
• While crypto has been largely uncorrelated with general risk assets recently, could this week see correlation start to pick up?

Looking back

Crypto majors BTC and ETH held on to critical support levels at $15.5k and $1,075 early in the week, and as shorts were closed, rallied back to the $16.5k and $1,200 areas on Tuesday, where we spent the remainder of the week in very low volume and volatility conditions. Late on Sunday, we again heard rumours of large quantities of ETH being moved on to exchanges, and both markets dropped quite suddenly again. Litecoin and Doge were outperformers, both managing rallies of around 30% from lows to head higher over the week. Suspect both were probably just outsized reactions to social media messaging in an environment of rock bottom prices and low liquidity, and it is hard to believe either move signals the start of any concrete market recovery.

Looking back at our weekly flow data it appears our client franchise has had a bit of a sell bias. Breaking it out by client category, all types were either slightly or strongly selling, with our fund clients as the only exception. Across regions, APAC is the notable outlier with strong buy flows, otherwise the Americas had a slight inclination towards selling while EMEA had a very strong one. Finally, there was interest to sell across almost every coin, with LTC, LNK, and BNB in particular seeing heavy selling. Across the majors both BTC and ETH saw relatively balanced flows,

Borrow rates for BTC and ETH have declined as short interest entered into after the FTX collapse was liquidated earlier in the week, meaning futures basis has returned to more normal levels, with Dec BTCUST 0-1% discount, and Dec ETHUST around 1-2% discount. CME futures remain dislocated as was the case last week.

Options markets have been a one-way train all week, with volatility and put skew dropping dramatically. The top down view is that since the lows last Monday, in both BTC and ETH, atm vols have dropped 15 points in 1 week, and 10 points in 1 month, with similar sized moves in 25 delta risk reversals. It seems there are few players willing to employ capital these days in long vol strategies.

Looking ahead

On the macro front, we have EU inflation data out on Tuesday, the Fed’s Beige Book and Powell speaking on Wednesday, and then US non-farm payrolls on Friday. Crypto has been quite uncorrelated with general risk assets recently. With vols and crypto borrowing rates coming well off the highs seen over the past week, one would expect a potential for that correlation to pick back up again, so these data points could be key to the week. Support levels at $15.5k and $1,075 for the majors will continue to be key.

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

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