Key Takeaways

• The inertia continues; BTC $26,400-27,500, ETH $1,770-1,870
• Market significantly more active yesterday as we rallied 2.5%
• Today, price action reversed yesterday’s gains; looks technically quite poor
• Basis was in doldrums but rallied Tuesday
• In OTC lending market, supply of fiat and stables remains tight
• Realised vols were nudging below 30%; curves up significantly Tuesday
• Risk factors growing as liquidity falls; potential for a volatile move by month end
  
  

Looking back

Ultimately nothing has changed since last week: crypto prices remain stuck in a narrow range, volumes and open interest are low, and volatility continues to drift lower.  However, the rally yesterday, followed by a rejection today, does actually look a little negative from a technical perspective. XRP was the standout gainer of the week, rallying on the release of documents which appeared to weaken the SEC case that it is a security.  

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Flows over the week have again showed a preference for BTC (53.2% buyer) over ETH (46.8% buyer), while we had strong buying in XRP (59%) and ADA (55%), and strong selling in SOL (61.2%), DOG (58.3%) and AVAX (65.6%). By region, APAC were better buyers (68%) while EMEA were better sellers (58.5%); by category, exchanges remain our best buyers by far (78.8%).  

OTC lend/borrow markets remain tight for fiat and stablecoins, with clients continuing to borrow to remain involved in length. Futures basis has picked up this week, particularly on less liquid venues such as CME and Deribit, where June BTC basis tightened to 8.01% and 2.50% respectively.  

Implied volatility reached historically low levels on Monday, particularly for ETH, and particularly for the back end of the curves. September ETH atm has been changing hands on a 46 handle.  The pressure on the back end is due to supply from ETH call overwriters who have been active sellers of September volatility. At the front, vols feel too high at 40%, while realised vol nudges 30%, but there is very little appetite to be short gamma within a crypto community still starved of risk capital, especially on the eve of a risky period. This set of factors is probably keeping the curves too flat for this outright level of volatility.

‍Looking ahead

The torpor can lure one into a false sense of security.  However, the longer this period goes on, the less likely it is to continue. That's just the nature of markets. As traders get positions under control, interest to trade at current levels wanes, volumes and volatility drop. At the same time, unnoticed and unwanted, liquidity also drains away. Then, as soon as something changes, the fresh marginal supply or demand has an outsized impact on prices.  

On the horizon, we have plenty of potential catalysts: a rising USD which is causing discomfort in emerging market balance sheets once again; Chinese capital markets looking weak once again, with 5yr swaps rates down from 2.75% to 2.45% this month and the currency weakening too; in the US the Fed is making noises that they may not be done with rate rises, as the labour and housing markets remain just a little too strong; and of course we have the US debt ceiling impasse hanging over us like the sword of Damocles. Logic dictates that Biden will get a deal done, since if he were unable, the main losers would be Republican voters, nevertheless he probably has the tools to avoid default in any case. However, this will probably go to the wire, and in the meantime the uncertainty may cause a spike in risk aversion.  

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Buy/Sell Ratio by Category

Buy/Sell Ratio by Region

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

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