deen

03 May 2022

TA Tuesday: Crypto market is far from recovery

Crypto Finance Team

team members

At the time of writing, $BTC is trading at $38,448 (+0.87% in 7 days), $ETH is trading at $2,844 (+1.03% in 7 days), and the ETH/BTC spread is trading at 0.07387 (+0.35% in 7 days).

Speaking bluntly in macro terms, the market looks really bad. Here are some of the most important numbers:

  1. S&P500 drawdown: 13%
  2. Bonds (Bloomberg Barclays Aggregate Bonds) drawdown: 11%
  3. BTC: -15% MoM (April was worst performance ever, and yet historically it was the best month)

This week, among many other things (i.e. 150+ S&P500 companies releasing earnings), there are three major events to track:

  1. Wednesday, May 4th: FOMC Meeting
  2. Thursday, May 5th: Bank of England (BoE) rate hike
  3. Friday, May 6th: April non-farm payroll report

Today, given the high correlation (i.e. BTC/Nasdaq 30d correlation: 0.73), these events are going to have an impact on digital assets as well.

As markets are now ALREADY pricing the below, any better news will lead to buy (and the opposite will lead to sell..):

  1. Target rate for May 4th, 2022: 75-100bps (https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html), thus a 50bps rate hike
  2. BoE target Bank Rate to 1.0% (25bps rate hike)
  3. 3. Non-farm payrolls average forecast is for a gain of 375,000 compared with an increase of 431,000 in March.

What I actually care the most about from a macro perspective are not these numbers, but rather understanding how the Fed is willing to reduce its balance sheet and manage the liquidity.

Therefore, while the June 150-175bps target rate and the July 200-225bps target rate are already priced with a probability of 95% (2x 0.75% rate hike in two months), it is not clear how the Fed will be willing to proceed with the Quantitative Tightening (QT) programme.

Chaos ensued the last time the Fed attempted to reduce its balance sheet in 2019: short-term funding rates spiked, and that was nothing.

Bloomberg Economics estimates that central banks will shrink their balance sheets by about $410 billions (last year $2.8 trillions were added).

And now on to $BTC spot:

30d beta and correlation with NASDAQ:QQQ are respectively 1 and 0.73 as the realised volatility drops WoW and is now 62.82%.

While moving averages are in a favour of a sell, oscillators are in the buy zone; overall, the outlook is pretty neutral.

BTC flirted another week with the $38k support, but should things continue to get ugly, we could soon test the $30k-$35k range.

Looking at Volume Profile Visible Range (VPVR), once again:

Supports: $38k-$40k

Resistance: $47k-$50k

On the BTC Options side:

The ATM IV term structure is still in contango, but trading in the bottom 25th percentile of the historical distribution.

The past few months always showed the negative correlation between vol and prices (higher vol, lower prices), should we test the lower $35k, IVol will lift immediately.

While the skews are all in favour of puts (all butterflies averaged: 10% ca.), the monthly expiration in May is in favour of calls as the $42k is likely to be the new support and $50k the resistance.

In other news:

– $CRO falls after Visa card rewards are abruptly slashed (-24% in 7 days)

– Solana Network faced (another) outage for seven hours on Saturday, and now they plan to introduce fees to stop bots.

On May 9, European options on SOL will be tradable on Deribit, and I am very curious to see if this will help the price discovery.

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