Last Week Recap
- FTX’s insolvency causes major damage to the crypto ecosystem.
- CPI sees its first meaningful drop this year, fueling equities higher.
- Binance announcing industry recovery fund to halt cascading liquidations.
With lower CPI, equities started squeezing late into last week. If it wouldn’t have been for the whole FTX debacle, crypto would’ve traded a lot higher at the moment. Instead, the correlation seems to be broken short term as long as there is a specific risk for crypto itself. The danger is that VIX is entering a zone where it has seen rallies every time. If that happens again + the specific risk already in crypto could still give to some more downward acceleration.
Open Interest & Funding Rates
As mentioned last week a perp-fueled rally usually doesn’t indicate anything good. Nobody could’ve predicted that FTX was insolvent but the price indicated that the rally was just a short squeeze which now seems to be confirmed.
BTC Weekly View
From a higher time frame point of view, the first real support for BTC seems to be somewhere near the 14 regions. BTC is currently consolidating under a 5-month range. Usually, this leads to major trends. With the downtrend already ongoing for 12 months, this could potentially be the final leg down for the crypto market.
ETH Weekly View
- As mentioned in our last week’s review, a low CPI could’ve led to a massive crypto rally, but obviously, the FTX blowup killed any chance of that.
- With BTC’s expected lows somewhere between 10-14k, we think it’s quite likely ETH retests those June lows but doesn’t break them. This aligns with ETH/BTC gaining strength (See next slide).
As mentioned, with BTC pairings gaining strength, the likelihood of dollar valuations dropping further was quite high. ETH/BTC is still trying to beat the current redbox. This has acted as resistance for almost 2 years now. The expectation is that when ETH/BTC ratio goes over .08, it will kick start an immense rally for ETH.
TOTAL2 – USD Market Strength
TOTAL2 was rejected again at 2021 lows and is trading at the June lows. This shows that alts have lost relative strength against ETH because ETH is still relatively trading higher. Showing that the merge dynamics are starting to be reflected in prices. And that ETH is currently one of the only points of strength in crypto.
TOTAL2/BTC is finally making its move again into the 2017 ATH. With ETH/BTC and some select other alts on ATH against BTC (BNB, MATIC,…). As mentioned last couple of weeks, the strength in the BTC pairings gave early hints that USD valuations would probably fall further. This way, the BTC ratios get more breathing room for the upside.
There’s been quite a bit of analogy to 2014. After the MTGox blow-up, crypto also saw a massive bull market in ALT/BTC ratios before the actual bull market in BTC ran up to 20k. If we’d have to make a prediction for the coming months, we think a repeat of that is quite likely.
- FTX implosion leads to major market damage and likely contagion.
- VIX nearing lower levels leads to caution again after a massive squeeze in equities last week. This could add further pressure to crypto markets that are already vulnerable.
- In the crypto options space, BTC and ETH front-end vols have retraced since last week’s explosive move higher, but the curves still maintain elevated levels. BTC and ETH 25 delta Risk-Reversal (C-P) continue in negative territory, with YTD bearish sentiment only 2nd to that seen on mid-June 22. Deribit suspends additional SOL option/futures business until further notice.
- This likely is the last wave of the bear market the immediate damage and sell pressure surrounding FTX is mostly done. Most of the others will have to go through legal bankruptcy laws, which can take years till those hit the market. The market might see some further downside into 14k BTC, but ETH is likely to hold the lows with merge dynamics playing out.
- FOMC minutes this week will give insights into what the FED currently thinking with inflation finally seeing a significant drop. And the job market starting to slow down, as well as layoffs at big tech.
The information in this report is for information purposes only and is not to be construed as investment or financial advice. All information contained herein is not a solicitation or recommendation to buy or sell any digital assets or other financial products.