Key Takeaways

• Crypto broke higher early last week, with BTC and ETH creating initial impetus

• DOGE was bid all week, but accelerated on Saturday, trading from 8.5c to 15c

• Implied vols reacted sharply, particularly in ETH

• This week is all about the Fed -  will they pivot, or not?

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Looking back

Crypto majors broke sharply higher on Tuesday without a single impetus. After trading in weekly 5-7% ranges for many weeks, we had sudden moves higher of 9% - 10% in the crypto majors. In the end, ETH rallied $300 (22%) to top out around $1,660, while BTC never convincingly broke $21k. Rates had been starting to move lower on Tuesday, on the back of slowing growth, poor earnings, slowing housing and job markets, and the idea that the Fed may be marginally less hawkish as a result.

And of course both BTC and ETH had been pinned around the $19k and $1,300 strikes expiring last Friday, so movement away from that long gamma in the market may have contributed to the sudden shift higher in volatility. DOGE spent last week rallying from 6c to 8.5c, as the market welcomed Elon Musk’s renewed commitment to the takeover of Twitter, and over the weekend DOGE took off, trading up to 15c, before settling around 12c.

Our flows this week have been mixed, with better buying of BTC, while ETH and DOGE longs took profit into their relative strength. We have had better selling in XRP, LTC, and LINK, and better buying in SOL and ADA. Regionally, America's clients stood out as strong sellers, and by category, the retail sectors were our better sellers.

Futures basis has tightened across the board, with ETH basis up 1.5% across 1 to 3 month tenors, while BTC is up 1.5% in the front, and 0.5% in 3month.

Implied vols had a big reaction to the spot move, particularly in ETH. The whole ETH curve had been around 11 vols over BTC, and by Wednesday the ETH curve was 20+ vols over BTC, where it remains today. Dec ETH riskies also jumped 5 vols in favour of calls at the same time, signalling either a distinct lack of call sellers, or a distinct change in sentiment, depending on which way you like to look at these things. Either way, vol remains pumped as we head towards what is likely to be a volatile week.

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Looking ahead

It's a big two weeks ahead, with the Fed statement this Wednesday, and US midterms elections, and CPI next week. The Fed will be all about the language and expectations for the December and early 2023 hikes, or in other words, a Fed pivot.

There is no doubt that the US economy is weakening: forward looking indicators of housing and employment markets are both turning lower, and these have been the main drivers of the sticky inflation numbers recently. The market is therefore hoping for a marginally less hawkish Fed, which would cause further strength in risk assets. Yet if the Fed decided that its own credibility is more important, and to hold a firm hawkish tone for one more month, risk assets should give up some of their recent gains.

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

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