Macro Market Update June 20, 2022

After the giant crash last week there are some positive signs in the dust.

Last Week Recap

• 3 Arrows Capital causing massive contagion throughout crypto after getting margin calls from multiple exchanges & lenders.
• Bitcoin trading sub 20k over the weekend
• Fed raised 75bps
• FTX hinting at bailouts on Twitter (source: https://twitter.com/SBF_FTX/status/1538518138685464577)
• According to Coinglass, the negative premium of the Grayscale Bitcoin Trust (GBTC) widened to 34.09%, a record low. EETH has a negative premium of 33.96%

Legacy Markets

VIX is still consolidating in the 30’s. This still is a major risk off environment. The main drivers of the fear in the market are still the Fed raising hikes and shrinking the balance sheet & geopolitical landscape.

Open Interest & Funding Rates

Last week we mentioned the potential liquidation cascade into 2017’s ath’s. Now that this played out and the major liquidations coming from institutional side this wiped almost 4B OI on public exchanges. And most likely even more on lending desks etc. Because these liquidations are from the institutional side we could see more redemption selling into eom as funds/vc’s/lenders are (forced) to liquidate assets.

Option Open Interest

This week we have a quarterly option expiry of more then 2B in open interest. In peak bullmarket this would be relatively easy to absorb but with liquidity drying out last couple of months and accelerating last week with multiple market makers, lenders, funds etc affected the impact for this week will be larger. Also a large part of OI on Deribit is/was from 3AC so how they will resolve this, is also a question in itself (For example do they sell BTC/ETH from insurance fund to cover the losses).

BTC Weekly View

• From a technical point of view a relief bounce into 22-24k area makes sense short term. The potential ramifications from 3AC blow up still need to be seen which could lead to further forced selling into end of month.
• The no relief scenario would be BTC closing back into the 17-18k range, this would most likely take BTC to 13-14k, this seems a little over done but the current situation is also quite extreme.

ETH Weekly View

• ETH went deeper then our expected capitulation zone into 1100’s with it making a current low under 900(!). A lot of this was caused by DEFI liquidations and 3AC having collateral in stETH. It’s also quite obvious that a lot of lending collateral was in ETH and BTC because a lot of altcoins started going up massive on BTC pairings (SOL,DOGE,LOOKS...)
• For this week we could see more redemption selling into EOM but the move over the weekend into 900’s already seems quite extreme. A lot of value buyers are also showing up in these areas and redemptions/liquidations probably also take place in OTC markets so there’s a possibility that those don’t hit the public market which would relieve the pressure.

ETH/BTC

• ETHBTC is following our projected path so far. Currently price is purely liquidation driven (this has historically always resulted in quite large returns afterwards!).
• After such large crashes price usually gives multi month consolidations. With macro still being bearish (Fed doing 75bps rate hikes) the market can see further pressure but with it also being in a perceived fair value zone these are most likely good longer term prices.

TOTAL2 - USD Market Strength

TOTAL2 is currently right on the 2017 ATH. The altcoin market has lost more then 1T since start of the bear market. After current crash and with the contagion being mainly in BTC and ETH there might be a possibility coming up of an ALTBTC and/or ALTETH run.

TOTAL2BTC - BTC Market Strength

As previously mentioned there might be a possibility of a little ALT/BTC action while BTC and ETH get redeemed/liquidated. TOTAL2/BTC is reflecting this with already seeing a quite strong upward surge since BTC dropped into the lower 20’s. The key is to be on the lookout for VC’s that are also tied up in the 3AC blow up and avoiding those coins.

ALTPERP

• SH*TPERP is starting to show some relative strength against ALTPERP. This means there is underlying bid in some smaller alt’s either because they’re way oversold or there is some underlying fundamentals in some which approached deep discounts vs potential growth in the future.
• Also highcaps trade more correlated to BTC & ETH so they got smacked together on the cascade.

*SH*TPERP/ALTPERP is a measure of speculative risk. When SH*TPERP outperforms ALTPERP it show a measure of speculation in the market which shows how much risk people are willing to take at a certain time.

Summary

• Possible signs of ALTBTC or ALTETH strength.
• FED accelerating rate hikes by doing 75bps.
• 3AC blow up and potential fallout hard to quantify.
• Potential pair trades with ALTBTC or ALTETH due to redemptions/liquidations.
• Quarterly option expiry for crypto this week.
• Bank holiday on Monday US stock market is closed.