Flow Analysis

The main event of the past week was the Fed, and the reaction was telling: crypto bounced on a hawkish statement, implying that the market had priced it in, possibly not surprising, given the generally high level of risk aversion going into the event. Despite that bounce, BTC has basically been on a slow grind lower, with a couple of marginal lower lows to around $45.5k. Our OTC spot volumes remain well below average on the year, as they have been since the 4th December washout; exchange volumes and open interest show a similar story. The market feels like it has packed its bags for the year, and actually feels a little underinvested right now. ETH has again slightly outperformed, with the cross holding the 0.080 level for now, and bouncing to 0.083/0.084 currently. DOGE rallied sharply mid-week on the back of a Musk tweet, but is now back to where it was pre-tweet, at 17c. Market outperformers have been MATIC, AVAX, and especially LUNA, which is currently challenging ATHs at $78.

Our flow data shows that our clients have again switched back to become better buyers of ETH (53.7%) over BTC (51.0%). Outside of these two, clients have been better buyers of XRP, BCH, XLM, UNI and XTZ, and better sellers of DOT, ADA, EOS, BNB. By client type, we have seen funds and retail platforms as better buyers, whilst family offices, OTC brokers, and banks have been better sellers. Regionally, the better buying was again seen out of APAC and EMEA.

Funding rates in cryptoland have not changed much over the past week: annualised basis for most term futures has settled firmly in the 6-10% range. Perp basis generally remains a small negative, but not enough to unclamp the periodic funding charges from +3bps/day (c.+11% annualised) on most exchanges. We are still seeing some interest to maintain longer term OTC stablecoin borrowing, but other customers have clearly deleveraged as we come into the holiday season.

In options, vols have fallen considerably post-event, with back end vols down 2-3 vols in BTC and 8-9 vols in ETH. This is not altogether surprising after a large event, but what is more interesting is that these dips in vols are meeting demand for calls, not puts, despite the risk aversion around, and the slow grind lower in spot BTC. Risk reversals have moved in favour of calls, on BTC by around 2 vols right across the surface; in ETH the move has been more pronounced in the front (Dec +3 vols, Jan +1), as the back end riskies were already well bid for calls. The risk reversal move is not huge, but given the price action, and also the risk aversion in wider markets, it could be significant. The options market could actually be showing us that big players are positioning for a new year rally.

In summary, liquidity and volumes remain low, and this is traditionally a tricky time of year to add risk. Yet there are signals that the market is starting to think about the green shoots of Spring. Compliments of the season to you all.

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About B2C2

B2C2 is the crypto-native liquidity provider across market conditions.  450+ institutions globally, including agency OTC desks, aggregators, banks, exchanges, FX brokers and hedge funds, rely on B2C2’s full service offering for 24/7 access to the crypto market.

Since it was founded in 2015, B2C2 built its technology, products and services to meet the evolving needs of diverse institutions.  Continuously innovative, B2C2 is trusted by clients to find solutions to industry challenges, such as creating the first crypto ISDA Master Agreement in 2018.

Acquired by Japanese financial group SBI in 2020, B2C2 remains a standalone company, headquartered in the UK, with offices in the US and Japan.  B2C2 OTC Ltd. is authorised and regulated by the UK’s Financial Conduct Authority (FRN 810834).  For more information, please visit https://www.b2c2.com

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