Cryptocurrency Dynamics in Focus

As we navigate mid-November, the cryptocurrency market has presented a blend of subtle movements and pivotal trends. Bitcoin (BTC) experienced a slight downturn, trading down around 1% at $36.8K, while Ethereum (ETH) showed resilience with a 1.4% increase to $2,090. A key highlight was the narrowing of Grayscale’s Bitcoin Trust (GBTC) discount to NAV, reaching a level reminiscent of July 2021, signaling a shift in investor sentiment since the peak of the crypto winter last December. Volatility patterns in the crypto market were distinct, with BTC witnessing a dip in short-term expiries, whereas ETH saw a rise, indicating differing investor expectations and market responses.

Interplay with Broader Financial Markets

A mix of anticipation and reaction to critical economic indicators marked the broader financial landscape during this period. U.S. markets, represented by the S&P 500 and Nasdaq, initially showed a flat performance as traders braced for the release of crucial U.S. inflation data. This data eventually led to a significant upswing in the stock market, underscoring the deep interconnection between macroeconomic indicators and market sentiments. Additionally, concerns over a potential U.S. government shutdown and high interest rates loomed over the market, adding a layer of complexity to the investment landscape.

Inflation Data: A Catalyst for Change

The release of the U.S. Consumer Price Index (CPI) data acted as a catalyst in the financial markets. Showing a cooling in headline inflation, the data spurred a rally in risk assets, including a notable performance uplift for BTC. However, this rally was short-lived, as both BTC and ETH and the broader stock market faced a corrective phase, likely attributed to a pullback from the CPI-driven surge.

Concluding Thoughts

This mid-November period illustrates the nuanced relationship between cryptocurrency and traditional financial markets. Crypto assets like BTC and ETH reflected their internal market dynamics and responded to broader economic events, highlighting their increasing integration into the broader financial narrative. As we look ahead, understanding this interplay will be crucial for investors navigating the ever-evolving landscape of digital assets and traditional finance.

Market Data:

BTC 25 Delta skew, measuring the IV difference between the 25 delta call and 25 delta put, stayed positive throughout all tenors, signaling a consistent bullish overtone, driven by call demand. Skew in ETH captured a similar trend, as both the major crypto assets exhibit a bullish sentiment in their underlying price dynamics. A sharp dip in weekly skew was seen as demand for puts heading into the weekend stepped in.

Term structures in BTC and ETH are upward-sloping, suggesting no short-term demand for optionality. A cross-over occurs after December expiries this month. This is noticeable as BTC has most recently traded higher across all expiries as the primary narrative of the BTC ETF has driven traders to BTC options. With Blackrock filing for a spot ETF in ETH as well, now ETH has a similar narrative and IV’s across the board have regressed to the previous norm of ETH at a premium.

Liquidations in BTC peaked earlier in the week, primarily driven by longs liquidated as forced selling entered the market on the initial downward price movement. As we trade in these new price levels, leverage built up on either side of the market has driven significant moves both higher and lower, and even average liquidations have picked up compared to August – October, as seen in the chart below.

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