Key Takeaways

• CPI showed less disinflation than the market expected, but crypto still rallied
• BTC moved from $21,800 to $24,800 by Wed evening, ETH from $1,510 to $1,710
• Highs Thursday around $25,250 and $1,742, market has been consolidating since
• Many mid-caps made post-FTX highs; SOL, DOT, MATIC, EOS, BCH, et al.
• OTC market tight for USD, and futures basis is bid, as traders compete for leverage
• Gamma is relentlessly bid, curves remained in backwardation over a quiet weekend
• Risk reversal better bid for calls as market reprices mid-term outlook

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Looking back

Crypto had failed to go down on recent bearish news (NFP & regulatory pressure) and when CPI data came out higher than expected, the same story prevailed: crypto tried to move lower, but was instantly rejected, and took off higher.  In 36 hours both majors rallied about 13%, to again challenge key resistances just above $25,000 and $1,700; where they have been consolidating for the rest of the week.   Various alts also made big moves, many making fresh post-FTX highs.

Flows have been very one sided over the week, with a fair preference for BTC (52.9% buyers) over ETH (50.8% buyers).  We had strong buying in XRP, SOL, MAT, DOT, BCH, amongst others.  By region, APAC flows were 59+% buying, EMEA 55+%, and Americas more evenly split.  By client category, the stronger buyers were funds and crypto exchanges.

Futures basis is up meaningfully, with March BTC basis up 4-5% on major exchanges to trade in the region of a 7-8% annualised premium.  ETH basis is up a more modest 1-2% on the week; good evidence that ETH is a follower for now, perhaps due to uncertainty around additional supply hitting the market after the Shanghai Upgrade next month.  

Options are well bid, with gamma calls in particular focus. Market makers are short gamma, and not comfortable adding to it, so offers keep being paid, and even during the weekend, while spot volatility remained low, the curve refused to move into contango, and by Monday morning offers were again being paid.  March BTC volatility is currently near recent highs around 58% vol, up from a low early last week around 44%. Risk reversals are well bid for calls, with 11 day (03 March) 25 delta r/r 6 vols for calls.

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Looking ahead

While key resistance levels just above $25,000 and $1700 remain within touching distance, and with crypto markets having successfully shrugged off bearish macros data and bearish regulatory news recently, it would be very understandable if crypto traders were not focussed on macro events this week. Yet, there are a few important data points out this week, including the Fed minutes (Wednesday), European PMI’s (Tuesday) and EU HICP inflation (Wednesday).  

The Fed minutes may have taken on extra significance given recent CPI and NFP data, both of which were well above expectations: signs of variance from the recent Fed meeting would indicate a higher likelihood of the Fed raising their forecast for peak rates.

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Buy/Sell Ratio by Category

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Buy/Sell Ratio by Region

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