Market Deep Dive: Challenges for Risk and Crypto Assets Amid Global Tensions

Disappointing trading volumes in ETH Futures ETFs as well as the strength of the USD posed significant challenges for the crypto markets. The unexpected conflict in the Middle East further fuelled the market’s aversion to riskier assets, including cryptocurrencies. Since last Friday, the price of BTC has steadily declined from a high of around $28,300 to a low of just over $26,500 on Wednesday and Thursday evenings. At the time of writing, the price is hovering around $26,800. Momentum was not on the side of the ETH bulls either, as its price fell from around $1,660 (last Friday) to $1,520 (on Thursday evening), seemingly taking the lead and dragging BTC and altcoins down with it.


In addition, the ETH/BTC ratio fell to a 15-month low, reflecting the lack of positive sentiment towards ETH. This ratio peaked at 0.059 on Monday (failing to regain the important 0.06 level) and fell to its lowest point of 0.05675 on Tuesday evening, before showing some signs of recovery. It seems that BTC has solidified its position as a recognised “commodity” within the regulatory framework, while ETH’s yet-to-be-defined categorisation, combined with concerns related to its DeFi undertakings, may be contributing to its relative lagging behind bitcoin.


On the crypto news side, former Alameda Research CEO Caroline Ellison testified that FTX founder Sam Bankman-Fried directed her to commit fraudulent activities. She claimed in court that Bankman-Fried orchestrated a system that allowed Alameda to access funds and instructed her to send altered balance sheets to banks that portrayed Alameda in a falsely favourable light. Another former employee, Aditya Baradwaj, revealed that Alameda Research had glaring security lapses. These lapses culminated in losses of more than $200 million, partly due to the company’s practice of storing private keys in clear text. Among the many incidents, a $100 million setback was notably attributed to a fake phishing Google Ads link.


On the macro front, this week’s tensions in the Middle East spurred a rally in traditional safe havens such as gold and the Swiss franc. However, in light of robust US economic data, gold retreated slightly, although it still managed to gain 2.4% on the week, while the Swiss franc gave back some of last Friday’s gains.


On Tuesday, comments from Federal Reserve voting members Raphael Bostic (for 2024) and Neel Kashkari (for 2023) hinted at a possible delay in the expected rate hike, given the recent spike in long-term yields – US equity markets rallied on this optimistic sentiment.


On Wednesday, Germany’s harmonised CPI was released, coming in in line with expectations at 0.3% MoM and 4.3% YoY. Meanwhile, the US PPI for September beat forecasts. On a MoM basis, the US PPI excluding food and energy (core PPI) rose by 0.3%, against expectations of 0.2%, while the year-on-year figure came in at 2.7%, beating expectations of 2.3%. This PPI data follows the previous trend of the US PPI rising to 2.2% YoY, which is usually a signal of inflation/higher consumer prices. Furthermore, the FOMC minutes from the September meeting were released, where officials were divided on the need for future rate hikes, but a majority hinted at a more likely hike – this contradicts the comments made by Fed officials on Tuesday and therefore seems outdated. However, all agreed to keep rates elevated until inflation moves towards 2%.


On Thursday, US markets opened on a subdued note following the release of the September CPI, which came in slightly above forecasts (YoY: act. 3.7%, exp. 3.6% / MoM: act. 0.4%, exp. 0.3%). Rising rents and fuel costs were the main contributors to the higher headline figure, although core CPI slowed from 4.3% to 4.1%. Meanwhile, weekly jobless claims were in line with forecasts at 209k, with bond markets showing little reaction to these figures.


In addition, UK GDP grew by 0.2% year-on-year in August, in line with estimates, led by the services sector, although July’s performance was revised down to a 0.6% decline; however, challenges remain as the International Monetary Fund forecasts that the UK will experience subdued G7 growth next year.


Overnight, China reported a 6.2% YoY drop in September exports, less than August’s 8.8% and surpassing the -7.6% forecast. Meanwhile, China’s consumer prices eased (YoY: act. 0.0%, exp. 0.2% / MoM: act. 0.2%, exp. 0.3%) and factory gate prices fell at a slightly faster pace than expected, pointing to ongoing deflationary pressures in the economy.


Later today, the focus will shift to ECB President Lagarde’s speech. Next week, look out for US (Core) Retail Sales on Tuesday, followed by China GDP, UK and EU CPI and US Building Permits on Wednesday. Thursday’s highlights include the Philadelphia Fed Manufacturing Index and Existing Home Sales.


Regarding crypto volatility, BTC and ETH currently have similar 30-day implied volatilities at 29.3% and 29.5%, respectively. With BTC’s volatility receding and ETH maintaining its previous levels, the volatility gap between the two has narrowed. Furthermore, both BTC’s and ETH’s 7- to 90-day 25-delta skewness are all negative, indicating a prevailing bearish sentiment in the near term.



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