It was a rough start to the week.
The sell pressure continued, pushing $BTC down below 40,000 and $ETH below 3,000. The market was seemingly weak and looked anxious at the important support levels: $BTC at 38,000 and $ETH at 2,850. At its most critical point, the situation then began to change. The market realised that there were massive buy orders around that served to support the market. On the derivatives side, the risk reversal structure began to flatten, as the skew of the puts started to decrease and the calls neutralised. The overall situation led to the market stabilising quickly and recovering.
Short-term implied volatility in both protocols declined over the course of the week, and the long-term implied volatility kept consistent pressure on the market.
In terms of price movement, I would consider this week to have been a choppy ride, with trading within a range of approx. 15%. It seems to me that the product (and the derivatives market overall) is growing at a fast pace, and the positions correlated to it are becoming increasingly important. The majority of these products are linked to the CME CF Bitcoin Reference Rate (BRR), which is a daily reference rate of $BTC as of 4pm London time. Each day, the BRR aggregates the trade flow of the major bitcoin spot exchanges during a specific one-hour calculation window. This reference rate allows a kind of fair settlement process and valuation of the outstanding products. However, compared to the traditional world, this methodology has plenty of room for improvement.
We like to cover all kinds of interesting topics in our market commentaries and weekly updates. One that I would like to revisit today briefly is the Cross-Chain Interoperability Protocol (CCIP).
CCIPs provide a universal open standard for developers to build secure services and applications that can send messages, transfer tokens, and initiate actions across multiple networks. This protocol enables smart contracts to interoperate across all public and private blockchain networks. Chainlink introduced CCIP last year in late summer, and is now gaining traction again (please see chart).