Key Takeaways
Looking back
The past week has been a perfect storm for BTC, coming from a low price after the collapse of SVB, followed by the Fed opening a liquidity window where cash was gratefully gobbled up in return for underwater term securities. With rate expectations collapsing, and the Fed flushing markets with liquidity, higher inflation seems almost a certainty in the short term. With many banking rails drying up for crypto market participants (meaning it's harder to get your dollars even if you do sell), and the recent volatility in stablecoins (particularly USC), it is highly probable that many players simply saw BTC as the least risky option to hold value, and offers disappeared.
Between Sunday and Monday, BTC rallied $4,000 to $24,500; on Tuesday we had CPI which was in line, but BTC took off anyway, trading up to $26,500 before falling back to $24,500. But on Friday in Asia the market took off again, trading up from $25,000 to $27,000 by London morning, and peaking at $27,800 later in the day. Since then we have seen two pushes at $28,500/28,800 resistance, but are currently still sitting around that level. ETH has underperformed all week, with the cross dipping 12.5% from 0.072 to 0.063. Mid caps have also generally moved higher, but ultimately this week was all about BTC.
B2C2’s client flows have again shown a clear preference to buy BTC (50.4%) over ETH (47.8%), strong selling of SOL, MATIC, LINK, and strong buying of XLM and NEAR. APAC has again been the better buyer of the week, with Americas and EMEA clients better sellers. By client type, only Funds were net buyers.
Basis on all futures/perps started the week in negative territory in the immediate aftermath of the banking crisis, but the spot rally propelled them to a recovery to positive territory. Interestingly, crypto-native CEX’s annualised futures basis moved to a small 1-3% positive, yet CME March and Apr bases rallied to 10-20% by the end of the week. The OTC loan market was subdued, as often occurs during a crisis, with activity falling to 2-month lows.
Options markets have been very active. A week ago, as spot BTC toyed with $20k, June 25 delta BTC risk reversals were 4 vols for puts; they are now 6 vols for calls. From the beginning for the year until 2 weeks ago, ATM vols had been strongly positively correlated with spot, which was a new vol regime after 2022 where the reverse was always the case. When SVB et al went down, that correlation briefly reversed as the crypto market once again panicked to cover downside risk. But as soon as the Fed came in, the positive correlation resumed, and here we are at the highs in risk reversals. ATM vols are of course quite pumped right now, with Mar around 75 and April around 68, but to a certain extent that is a result of spot being at the highs.
Looking Ahead
This week will of course be all about Jay Powell, who probably has the most tricky job in the world right now: keep inflation under control, the banking system afloat, and the job market humming - good luck! Two weeks ago the market was evenly split between 25 to 50 bp, and is now pricing in 0bp and later rate cuts, despite inflation re-accelerating and the job market staying tight.
Whatever the Fed does, crypto could do its own thing entirely. We have seen plenty taking profit at current levels, which makes sense as the 28,500/28,800 is a historically important area: where the market stopped dropping in mid-2021. That said, a lot of these longs have simply recycled profits into call options, so it does feel that the market is short gamma to the topside. Either way, it's going to be a big week - strap in!
Buy/Sell Ratio by Category
Buy/Sell Ratio by Region
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