Flow Analysis
It has been an intriguing week in crypto, with BTC consolidating, ETH recording a new ATH, one highly correlated market sell-off; and plenty of idiosyncratic moves. The sell-off on Wednesday was worrying as it took BTC conclusively below 60k support, and also busted the 1-month uptrend on ETH, although ETH came back strongly Thursday to post a high around 4,460. DOG rallied the same day, from 0.24 to 0.34 as the meme stock crowd rotated back to DOG from SHIBA.
Our flows over the past week indicate a more balanced market in terms of overall buy/sell ratios. In the majors, we still see bias to sell BTC and buy ETH. Elsewhere, we have seen buyside bias in ADA, XTZ, and EOS and we also saw heavy buying, then selling, of DOG (offsets in bar chart). In terms of the breakdowns by client type and region, we see a clear change in theme: over the past week, retail money appears to have done the bulk of the buying. Crypto exchanges were buyers 56.9% of the time, with banks erring to the sellside, and other categories evenly balanced. Regionally, APAC (mainly retail) has been a better buyer, and Americas (high institutional weighting) turned net seller.
Overall we can draw two main conclusions from our flow data: the institutional buying has subsided, and has been replaced by retail demand; and the market continues to rotate away from the majors into more risky assets. Whilst neither of these are classic top signals, both could be construed as evidence that this bull market might be a little long in the tooth.
Futures markets don’t provide many strong signals right now. BTC futures open interest dropped 10% this week, in lower volume trading, while ETH futures were more active. Term futures basis retreated sharply last Wednesday, when the whole market lurched lower, but has since recovered: annualised basis on the OKEx Dec ETH future, which has been up above 20% recently, bottomed around 12%, and currently sits around 15/16% - not extreme levels, but not exactly cheap either. The CME curve has not recovered, and the basis there now remains firmly the lowest of all major exchanges; more evidence that institutional buying is done for now.
BTC option flows over the week have been lighter, while the market remains focused on ETH topside, with year end calls such as Dec 6000s bought steadily over the past week. Market makers were already short of year end BTC calls, and March ETH calls, so this flow simply adds to the imbalance, and mid curve vol and skew remain well underpinned. Interestingly, since the end of last week, short dated risk reversals have flipped back to puts, for both BTC and ETH. And given that we have not actually sold off much on spot today, these skew moves could be an indicator that short term sentiment is souring.
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