Monday’s sell-off in risk assets, including cryptocurrencies, was driven by a combination of factors: worse-than-expected Nonfarm Payroll data and higher unemployment rates from Friday, which heightened fears of a recession and triggered the Sahm Rule indicator. Additionally, escalating tensions in the Middle East, the unwinding of the JPY/USD carry trade — fuelled by the NFP data — and a sharp decline in Japanese equity markets following the second rate hike of 15 basis points, the highest since 2007, all contributed to the downturn.
Panic in the crypto markets escalated as prominent market maker Jump, amid rumours of shutting down its crypto trading operations, began offloading ETH onto exchanges. However, the primary driver of the crash was macroeconomic factors and excessive leverage, leading to a cascade of major liquidations exceeding $1 billion across all cryptocurrencies. The extent of the leverage at play was evident in BTC perpetuals’ Open Interest, which remained above the November 2021 all-time high, even after BTC had already dropped by more than 15% from its peak. From this perspective, a leverage washout can be seen as a potentially healthy correction.
As a result, BTC sold off over the weekend, falling below USD 60,000 on Sunday night and crashing to USD 49,000 before the European session on Monday. However, better-than-expected PMI data and comments from Chicago Federal Reserve President Goolsbee, who emphasised that the Fed could afford to wait for more data rather than relying on a single data point, helped lift the markets. Following the release of Initial Jobless Claims data yesterday, BTC surged above USD 60,000, reaching a peak of around USD 62,750 before settling at approximately USD 60,600. Key support levels are at USD 60,000 and USD 58,300, with the potential for a rapid decline to USD 55,000. On the upside, the first resistance is at USD 61,300, followed by USD 62,500, with the possibility of rising to USD 64,000.
ETH/BTC dropped to 0.04 on Monday and is now trading below 0.044. Notably, since ETH’s transition to Proof of Stake on 15 September 2022, ETH/BTC has been in a downward trend, suggesting that traditional finance investors favour BTC over ETH, as evidenced by stronger BTC ETF flows compared to ETH in recent days. However, with the narrative shifting — indicating that ETH/BTC cannot decline indefinitely and that portfolios are being rebalanced — there may be potential for ETH to regain some ground. Although SOL/ETH has shown strength over the past few weeks, it peaked just below 0.065 yesterday and has displayed some weakness since. There could be room for ETH to recover, possibly reaching 0.045 ETH/BTC and 0.058 SOL/ETH.
The 30-day BTC ATM implied volatility rose from 46% to 54% (+8% WoW), while the 30-day ETH ATM implied volatility increased from 52% to 67% (+15% WoW). The 25-delta skew turned negative across all timeframes from 0 to 60 days for both ETH and BTC, with a steeper skew for ETH, indicating that traders expect ETH to underperform BTC in the short term but outperform it in the long term.
On the macroeconomic front, the week was relatively quiet after Monday. On Monday, ISM Non-Manufacturing PMI met expectations at 51.4, while S&P Global Services PMI slightly missed, coming in at 55 versus the expected 56. In the absence of other major economic news, markets reacted strongly to yesterday’s Initial Jobless Claims, which came in lower than anticipated at 233K (expected 241K), while Continuing Jobless Claims were slightly higher at 1,875K (expected 1,870K).
This morning, German CPI numbers matched forecasts, coming in at 2.3% year-on-year and 0.3% for the month.
Next week will be crucial for setting expectations around potential Federal Reserve rate cuts and assessing the broader economic outlook. Key economic events include US PPI numbers on Tuesday, followed by US CPI, Japan’s GDP, and UK CPI on Wednesday. On Thursday, US Retail Sales, the US Philadelphia Manufacturing Index, and UK GDP figures will be released.
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