Last week, BTC saw a significant decline, trading from a high of USD 72,400 to a low of USD 60,700 (L/H: -16%).
Similarly, ETH saw a substantial drop from a high of USD 3.9k to a low of USD 3,000 (L/H: -23%), while SOL fell from USD 209.9 to USD 162.41 (L/H: -22%).
These rapid shifts in sentiment can be attributed to three primary factors:
- Decrease in net inflows for BTC ETFs.
- The dovish and bullish stance of the FOMC.
- Implementation of the first rate cut by the SNB.
Inflows into BTC spot ETFs peaked on 12 March, breaking the USD 1bn mark in a single day, and have since declined, turning net negative.
Spot prices have also fallen, finding good rejections at USD 64,000 and USD 61,400.
I see many reasons for this shift in sentiment, and my unpopular opinion is that the people behind these ETFs are most likely traditional asset managers who are not accustomed to seeing these price swings, and are taking profits rather than hodling (i.e. rebalancing the portfolio), and secondly they are trimming their losses.
So, we are probably going to have to get used to seeing mixed flows in the ETFs (similar to single commodity ETFs).
Other digital assets, such as solana and ethereum, have displayed remarkable high-beta performance despite their individual narratives.
Ethereum recently underwent the successful Dencun upgrade, which is expected to significantly reduce Layer 2 transaction fees and improve its scalability, efficiency, and security.
However, the likelihood of an ethereum ETF being approved by May has fallen from 82% to 24% on Polymarket, amid the SEC’s campaign to classify ethereum as a security.
Despite advancements, the ethereum network still faces challenges in terms of affordability and speed.
Meanwhile, solana has experienced a resurgence, with Dex volumes on its network surpassing those of ethereum, driven by the memecoin mania.
The quick turnaround from bearish to bullish sentiment coincided with the FOMC meeting on 21 March, which presented a clear bullish yet dovish stance.
During Powell’s press conference, he notably downplayed concerns about the high inflation figures in January and February and emphasised weakness in the labour market.
Additionally, the dot plot revealed a notable shift, with more members forecasting three cuts in 2024 (9 members vs. 6 in December).
This triggered significant reactions in the crypto market, underlining the fact that despite specific narratives within the crypto sphere, digital assets remain highly sensitive to macroeconomic factors.
At the same time, all major US equities indices reached new all-time highs.
The recent 25 bps rate cut by the SNB underscores central banks’ efforts to stimulate the economy, and reflects a general confidence in the easing of inflationary pressures.
However, both Europe and the US appear unprepared for such an adjustment in policy rates, helping to push the USD index to 104, up 2% increase from last Friday’s low.
This strengthening of the US dollar is putting downward pressure on macro-risk assets such as cryptocurrencies and gold, which are currently the most USD-sensitive assets.
In crypto derivatives, the 30-day BTC ATM implied volatility eased slightly week-on-week, falling from 74.3% to 72.5% (-2.42% WoW), while the ETH ATM implied volatility rose slightly from 73% to 74% (+1.37%).
Looking at the 25-delta skew, it remains negative for BTC until 12 April and for ETH until 26 April.
Across the curve, implied volatility for ETH is consistently higher than for BTC, and the skew is more negative for ETH than for BTC out to 90 days.
These trends underscore the return of ETH as a high-beta asset, more sensitive than bitcoin, with traders positioning for potential further declines in ETH.
Funding rates and term futures basis remain stable and high, indicating ongoing demand for leverage.
With leverage at such levels, whether through high funding rates or a significant positive long-term skew, we can expect spot prices to trade within a wide range, with previous highs being aggressively sold and previous lows being bought.
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