TA Tuesday: Crypto market seems to revive some hope as US equities rally

At the time of writing, $BTC is trading at $31,774 (+6.96% in 7 days), $ETH is trading at $1,993 (+0.81% in 7 days), and the ETH/BTC spread is trading at 0.06275 (-6.15% in 7 days).

The week started on a positive note after the rally we saw in US equities.

The 10y US Gov. Yield stabilised at 2.84%, and the US Dollar Currency Index (DXY) is now back to its 50-DMA (101.6 ca.), providing the FX and crypto markets a slight sigh of relief.

Crypto and TradFi correlation weakened over the week (in favour of TradFi), with the 30-day correlation between $BTC and NASDAQ:QQQ now trading at 0.55. Similarly, equities and bonds stopped moving together since the US 10y yield topped the 3% resistance.

In my view, investors are now moving capital to safer bonds instead of just selling and holding cash (as they did up until now…). A broader risk appetite coupled with lower correlation between the asset classes might mean prices have bottomed out, at least for a while.

Key macro figures see higher inflation, a slightly higher personal income, and stable spending. Should the spending stop being robust as personal income cools down, consumer prices will cool down as well.

Therefore, following the two consecutive 50bps hikes in June and July, we might see a less hawkish Fed in September, which will most certainly give a nudge to both crypto and stock prices.

On the spot side:
$BTC posts biggest daily price rise in two months, and most of crypto followed. The major rotation into $BTC seems to be done now. Ethereum gas fees are now at a record low sitting at around $3.7 per transaction as heavy gas transactions (i.e. NFT transfers, UniSwap transactions) are at an all-time low. Then, while $SOL and $AVAX spot prices seem to be recovering a bit, the number of daily active users on both blockchains is dropping week over week. These facts, coupled with the potential ETH merge and the current weak ETH/BTC spread, might be the catalyst for a now higher $ETH and lower L2s and Ethereum killers.

On the derivatives side:
The futures prices have not reacted at all to the choppy price action, with 1-month and 3-month futures staying fairly stable: BTC 3 months annualised rolling basis is trading at 2.75% on CME.

In terms of the vol space, things are a bit different. During the week, the market has been pricing the ETH downtrend agressively in favour of BTC, with the short-term BTC IV cooling down to 66% and ETH IV inching higher up to 78%.
The skews are calming down: but as I said last week, they are still way too high for both BTC and ETH. BTC 3-months 25d skew is now trading at 14% in favour of puts. Given the strong negative correlation between spot price and volatility, to me it is now a great deal to be short vol, gaining the skew reversal and potentially higher spot prices.


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