Key Takeaways

• FTT and SOL broke lower early Tuesday in Asia

• By Tuesday evening in NY, FTX was looking for a buyer

• Prices bottomed late Wednesday at $15.5k in BTC, $1,075 in ETH

• CPI took us higher as broad dollar sold off, BTC and ETH went to $18k and $1,340

• Rising contagion fears then took everything back to the lows by Asia Monday

• CZ announced formation of a rescue funds for good projects in liquidity crisis

• Prices bounced again and vols sold off quite hard

• Futures basis is a lot lower, and is showing divergence across exchanges and assets

• Dec BTC vol up from 55 to 80 over the week, dropped 10 full vols to 70 on CZ tweet

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Looking back

Alameda had tweeted over the weekend that they would buy all of Binance’S FTT holdings at $22. The market appeared to lose confidence in that statement around 02:30 UTC on Tuesday. By 05:00 UTC, FTT had traded down to $15; and by London evening it traded below $3. By the evening in New York, FTX had ceased processing withdrawals, and news broke that Binance were signing a non-binding LOI to potentially rescue FTX. By late Wednesday in NY, after due diligence, Binance announced that was not going to happen, and FTX duly filed for Chapter 11 later in the week.

Majors fell hard on Tuesday and Wednesday: BTC dropped from $20.5k to a low of $15.5k as Binance announced no deal. BTC bounced to $18k as the broad US Dollar took a hit on Thursday’s lower CPI print, before continuing lower and settling into a $16.5-$17.0k range over the weekend. ETH took a similar path, bottoming out around $1,075, bouncing to $1,340 on CPI, and trading $1,220-$1,280 over the weekend, though it has to be said that ETH is holding up relatively well, with ETHBTC at 0.075, at around the 70th percentile of its 2022 range of 0.05-0.085. SOL has been the big underperformer, unsurprisingly given liquidations expected from Alameda/FTX, falling from $31 to $12.50 over the week.

Stablecoins have also become more volatile, with Tether depegging slightly last week, trading down below 98c on Thursday, and as low as 95c on some exchanges.

In Asia this morning we saw a return of price weakness, with BTC and ETH trading below $16k and $1,200, though the sell flows were quite a bit lower than we were experiencing late last week. Mid afternoon, CZ of Binance tweeted that he was forming a crypto recovery fund to assist good projects who are strong but in a liquidity crisis. Prices jumped 4-5% instantly, and vols sold off hard, so the market is clearly looking at CZ for direction.

Over the week, our flows have been rather evenly mixed, with a slight bias to sell both BTC and ETH. Regional analysis shows that clients from the Americas have been strong sellers, while those from EMEA and Asia have been net buyers, as one might expect in a deleveraging market. By category, our strongest sellers have been OTC brokers and exchanges, and our better buyers have been banks and funds.

Futures basis has moved lower in general, but we note a divergence in pricing between exchanges and products. For example, on Binance, Dec BTCUSD futures are trading at an annualised discount of 6%, while BTCUSDT futures are trading at 4% discount, implying that the market strongly prefers shorts against the dollar than against tether. Meanwhile on Deribit the Dec BTCUSD futures are trading at an annualised discount of 10%, perhaps an indication of lower bid side liquidity on that exchange.

Implied vols have stayed firmly in an uptrend since last tuesday, with Dec BTC ATM vol trading steadily higher from a 50-55 range to a 70-80 range, and 25 delta risk reversals blowing out from 5 vols to 25 vols in favour of puts. At the highs, options expiring this Friday, with BTC at 95 vol and ETH at 135 vol, were implying daily breakeven moves of $800 in BTC and and $85 in ETH.

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Looking ahead

One has to ask why prices are not already lower than they are. The answer may simply be that the scale of this collapse is such that credit concerns now trump every other risk, and participants are focusing on moving assets off exchanges, at the short-term expense of price risk management. Another reason may just be that the market has been relatively de-leveraged for some time, with the consensus view being to sell rallies. The other reason might be that we are simply at attractive long-term price levels, and long term players are accumulating here, as the industry deleverages at fire-sale prices once again.

The week ahead will be a totally random walk. We will have no choice but to watch the headlines, and try to filter out some truth from the noise. But until the fallout is clear, and some element of trust returns in the crypto market, one has to think that this could be quite some way in the future.

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

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