Recurring market commentary on what’s happening in the crypto markets, summarized by the Crypto Broker team at Crypto Finance AG.
Market commentary
Good Morning!
The Merge went smoothly and successfully, but it was a nightmare for all volatility buyers. Now, we have another week of macro headlines and key interest rate decisions. At the time of writing the price of Bitcoin (BTC) fluctuates at around 19.2k USD (-14% in 7 days) and Ethereum (ETH) at 1.35k USD (-21.1% in 7 days).
Macroeconomic developments
Upcoming events of this week:
- Wednesday, September 21st: FOMC rate decision (cons: 3.25%; previously: 2.5%) implied 75bps hike
- Thursday, September 22nd: SNB rate decision (cons: 0.5%; previously: -0.25%) implied 75bps hike
- Thursday, September 22nd: BoE rate decision (cons: 2.25%; previously: 1.75%) implied 50bps hike
- Friday, September 23rd: Fed Chair Powell is scheduled to speak
With no doubt the most followed and most influential event is the FOMC rate decision. The 100 bps rate hike is now “priced in” with a probability of 16%. Last week, Core CPI rose 0.6% MoM and all measures of CPI numbers were above their median forecast. To be honest, as long as the US labour market remains stable, I do not see any reason why we should see a Fed pivot. At the moment, I am skewed to a 100 bps hike rather than 75 bps. Nevertheless, I expect the following scenarios:
- 50 bps hike: risk-on market (tech and digital assets higher)
- 75 bps hike: non-event
- 100 bps hike: risk-off market (tech and digital assets lower)
US 1Y Yield is now 4.0683% and US investment-grade bond yields are 5.14% on average, which is the highest they have been since 2009. Fewer than 15% of S&P500 stocks have dividend yields greater than these yields. So, why should investors risk their capital? Over the course of the week, I expect to see a stronger dollar (currently DXY: 109.46) and a stable CHF (currently SFC: 91.92). In addition to this, Europe is well behind the curve. I do expect a lower EUR against both USD (currently EURUSD: 1.0027) and CHF (currently EURCHF: 0.9665).
Crpyto down despite successful Merge
- Crypto Total Market Cap: 902.86B USD
- BTC/USD: 19,448 USD (-13.14% WoW)
- ETH/USD: 1,365 USD (-20.48% WoW)
- SOL/USD: 32.51 USD (-13.17% WoW)
Going into the Merge, there was massive vol priced in as the ETH weekly ATM implied volatility was 140% prior to the merge. Then it dropped to 94% immediately afterwards, while the realised volatility was unchanged throughout the whole event. Similarly, the ETH-BTC Implied Volatility spread dropped across the term structure, but the volatility premiums are still large. I see an increased appetite for ETH downside as a high-beta trade into the FOMC rate decisions (long BTC, short ETH). BTC ATM implied volatility term structure is in contango with weekly maturities below 70% vol. I think being long volatility and short delta into the FOMC is a nice volatility trade here. ETH was once again unable to hold higher prices and to break the USD 1,800 resistance. A hawkish Fed will see ETH approaching the USD 1,200 support and ETH/BTC at 0.065.
Happy Trading!
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