Key Takeaways

• Positive bias, but majors still within established ranges
• EOS was altcoin star of week; strong selling in LUNA
• Supported by risk recovery after expected Fed and BoE decisions
• Changes to recent flow patterns: buying led by Americas, selling by APAC
• Derivatives pricing bias moving towards topside
• Watch UK inflation and Eurozone PMIs out this week

Looking back

Crypto markets traded with a positive bias, although majors are still within established ranges. The Fed pleased markets generally, and crypto reacted in line by trading higher and by unwinding some of the recent BTC outperformance. ETH is up 12% from a week ago, while BTC only managed 5%, due in part to the unwinding risk aversion, but also perhaps beginning to price in the upcoming ETH2 Merge.  Outside of the majors, AVAX was the star of the week, ahead of this week's conference in Barcelona, up 25% from a week ago.

Our flows this week have shown some notable changes to recent trends. For at least a month, our clients have favoured buying BTC over ETH, but this last week ETH has been favoured. Regionally we see a similar shift:  APAC clients have been our strongest buyers for a month, but this week they were our strongest sellers, while clients in the Americas were the strongest buyers. Looking at individual coins, we saw strong buying (>60% buy flows) in SOL, ADA, DOT, MATIC, XLM, EOS, BNB and UNI.  The only strong sell flows we had were for LUNA.  

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Futures basis did creep a little higher during last week, especially in the longer dated futures.  For example, the 3-month basis has drifted up from the 2-3% range to above 3% on most major exchanges.  We haven't seen any real pick-up in OTC activity, although this could be related to option market activity where we’re seeing increased interest in owning call options, as detailed below.

BTC implied vols have fallen hard since the Fed, with April ATMs down 10 to 67 vol, due to the fact that spot has not done much (relative to other risk assets) and also because we have rallied into an area where the market is better supplied with gamma. However, while ATMs have dropped, put skew is now better offered, with April 25 delta risk reversal dropping 4 vols to 1 vol for puts.  Again, exchange volumes have been heavily weighted to calls and we have even seen interest to buy back-end low delta calls, which are still trading cheap relative to both ATMs and also to the sort of prices they traded at for most of last year.  Front end ETH vols were hit hard late last week, with 2-week calls momentarily trading at a discount to the equivalent BTC contract, which is quite unusual, due to continued heavy DoV supply.  Overall, given the continued supply of topside optionality from DoV flows, one has to say the move in risk reversals (in favour of calls) is notable.  The implication is that this could be a real shift in sentiment.

Looking ahead

‍Economic data this week is quite limited, but eyes will be on inflation data out of the UK on Tuesday and Eurozone composite PMIs on Wednesday, which will give us a glimpse into how business confidence has been affected by the war in Ukraine.  Economists are on average expecting a PMI of around 54.0 although individual predictions are heavily dispersed so the number could have an outsized impact on risk, especially if it comes in near to, or below, 50.  Data apart, we’ll be closely watching the vol surface for further evidence that traders are looking to position for medium-term strength in BTC and ETH.

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