Looking back

Crypto markets have been generally quiet and range-bound, with the exception of an ~8% rally on Wednesday morning in Asia - widely attributed to Biden’s executive order on crypto strategy - which was unwound about 24 hours later due to increasing uncertainty around the Ukraine situation, commodity prices, inflation and rising rates.  It is worth noting that during the rally, BTC outperformed most other coins, with ETH/BTC dropping from 0.0665 to 0.0645, implying that traders favour BTC when trying to go long crypto, due to risk-off sentiment within the crypto ecosystem.  Aside from BTC outperformance, the other point of interest from the week was that XRP outperformed on Friday, trading up 15% to 0.8450 on the back of a court decision to deny the SEC’s motion to strike Ripple’s fair notice affirmative defence.  

Flows this week again showed a preference for BTC over ETH.  We saw strong (>55%) sell flows in SOL, DOT, ADA, BCH, MATIC and BNB, and a strong bias to buy only for XLM and EOS.  Regionally, APAC clients were the strongest buyers, whilst EMEA accounts were the better sellers.  By client types, we saw better buying from exchanges and retail brokers, and better selling from banks and family offices.

Implied rates from futures basis are again essentially unchanged, with 1-month basis at 1-2% and 3-month at 2-3% on most major exchanges.  However, we would note that alt coin perpetual swap funding rates remain generally negative, due almost certainly to generalised risk aversion.  In line with the latter, we continue to see slightly elevated interest to borrow crypto. 

The options market is trying to tell a story for the bulls, but once again it is only half convincing.  Vols have continued edging higher in the back end, leaving June ATM vol up 2-3 points on the week at 73%, and riskies again slightly better bid for calls.  Also worth noting that calls have been making up the bulk of the trading volume in recent days, so something does seem to be changing in terms of medium term outlook.

Looking ahead

The outlook for the week is going to depend a lot on what is said and done at the Fed meeting on Wednesday. With the supply shock to the market from higher commodity prices, one would be surprised to see the Fed go more than 25bps, but it is certainly not beyond the realms of possibility.  The Bank of England will be watched also for their decision on Thursday, where markets expect another 25bp rise.  Otherwise we will continue to watch for signals of whether BTC is still a risk asset or not, and also for a break in the current consolidation which is technically bounded by recent highs at $45.5k to the topside and both short and long term trend supports at $35k below.  

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