Flow Analysis

BTC hit a fresh ATH last week, rallying on Wednesday to 66.9k, The ProShares ETFbegan trading with very impressive volumes.  The market sold the fact, however, and BTC could not hold the gains.  On Thursday we traded back below $63k, and after another leg down on Friday, BTC has been stuck in a $60/62.5k short term range.  ETH actually performed better during the second half of the week, equalling its ATH of 4,380 on Thursday with ETHBTC up 10% to 0.067 over the past three days.  Furthermore, something interesting is going on in ETH options - more details below.

Flows remain mainly buy side, and our breakdown by client type signals a persistence of the theme of institutional buying over retail involvement.   It should be noted however, that exchanges were better buyers over the past week, in stark contrast to the previous week when they were heavy sellers.  Our geographical breakdown shows APAC becoming a better buyer finally, which also hints at retail getting involved up here towards the highs.

This has been a week of two halves, with a clear change in tone on Thursday, so we have split our coin breakdown this week into Monday-Thursday and Friday-Sunday.  As expected, the earlier part of the week showed a bias towards buying in both BTC and ETH, and overall across all coins, particularly in ADA, DOT, DOG, BNB, UNI and XTZ. The second part of the week showed a selling bias in BTC and a continued bias to buy ETH; witha heavy selling bias in DOG, XTZ, and BNB.  

BTC futures volumes have been quite high this week, but open interest has remained stable around $25bn across the main exchanges we track. Perp swaps basis reached quite high levels on Wednesday/Thursday last week.  However, more interesting was the drop in CME funding relative to unregulated exchanges.  CME basis for October and November are now 15% and 13% respectively, down from 27% and 16% a week ago, while there has been no significant shift in basis on unregulated exchanges.

In options land, as mentioned earlier, something interesting is going on, but not in BTC as one might expect but, rather, in ETH.  BTC vols have not changed much over the week: 1 week vol is still mid-70s, while the back is still low 90s.  Risk reversals remain quite well bid for calls. As noted last week, market makers are pricing a large premium on year-end calls, but last week we hit an ATH, and virtually nothing happened: spot rolled back over, and vols did not move.  On the other hand, the ETH surface has changed significantly due to a new flow, which was back end call option buying, notably in March 15k calls, where open interest has exploded.  This flow began around the time the BTC ETF was confirmed, and is thought to be whales positioning for an ETH futures ETF announcement.  ETH vols have been soggy for a while, with 3m realised vol at 85% (only 10vol above BTC realised), so after this latest move in implied vol, we have a huge risk premium.  Mar21 ATM options are around 125 vols now, and 25 delta skew is around 26 vols.  The Mar 15k strike itself is changing hands at 149 vols, which could be described as a firm commitment to the upside, and a strong signal that ETHBTC may have bottomed out for now, and that ETH may be about to take the driving seat for the market in general.

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