Crypto bound in tight bands; prices remain choppy

Crypto spot has once again been range bound in tight bands, and the price action is choppy. Everyone’s 2021 darlings – SOL, DOT, and ADA – are once again testing the May/June lows.

Table 1: Majors

PairPriceChange WoW30-day Realized Vol
BTC/USD$19,338-1.07%26.51%
ETH/USD$1345.8+0.71%51.41%
SOL/USD$28.38-9%64.9%

I expect prices to remain unchanged for another week. There are no risk events or catalysts to watch out for this week.

Now let’s look ahead on the economic calendar. The week will be another calm one for crypto and the risk market in general as everyone’s focus is on next week’s Fed rate decision on Nov 02 (expected hike : 75 bps).

1. On Thursday, the ECB will hold talks and decide on its three key interest rates with which to fight inflation. Consensus sees a 75 bps hike for all of them.

2. On Friday, the US Core PCE Price Index for the month will be released. Actual is 0.6%; forecast is 0.5%. This is one of the favourite FED inflation measures because it is chain-weighted and it excludes food and energy.

Even if the price of goods and consumer expenditure calm down, I expect “risk-free” rates to stay high.

Currently, I am leaning towards excluding a rally to the upside, and I expect the consolidation phase to stay. And I wouldn’t be surprised if we again test May/June lows for both BTC and ETH.

Some positive news:
Incoming UK Prime Minister Rishi Sunak is pro crypto, and he wants to make the UK a global crypto asset technology hub.
https://www.gov.uk/government/news/government-sets-out-plan-to-make-uk-a-global-cryptoasset-technology-hub

On the derivatives side:

  • Futures and Options Open Interest continue being high despite low volumes on the spot side.
  • Futures bases are unchanged with 3-month rolling annualised basis trading at 0.82% for BTC and -3.04% for ETH.
  • The volatility term structures for both BTC and ETH keep being very steep, and are shifting lower week over week for both BTC and ETH.
  • Variance risk premia remain high as the 7-day ATM IV for BTC is 46% and the 7-day Realised Volatility is 28%. I expect the back-end of the curve to shift lower as well and short-vol strategies outperforming again.
Despite this volatility low for crypto, I see very few reasons why it should inch higher in the next seven days, and I am expecting the low volatility to last at least until the FOMC.
 

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