29 November 2021

Market Recap

Last week ended with a bang, as combination of TWAP selling, dealer caught short on monthly options expiry, bearish broader macro/risk sentiments, and BTC breaking key support level of $56k led to big market sell-off. Bitcoin saw >10% drawdown, whilst alts underperformed, reinforcing the safe haven asset status of bitcoin in the cryptocurrency space. As a result of bearish price action, funding has been chopping around zero (Chart 1) and with nightmarish memories from March’20 Covid flash-crash, market bidded puts, dragging skew lower (Chart 2).

Chart 1: YTD 7-Days Moving Average of Hourly Funding Rate for BTC and ETH on FTX
Chart 2: Delta Skew (3DEC21 expiry), from Source: Laevitas

However, level of liquidation on Friday was muted ($860mio on Friday; lower than amount of liquidation on 11/16) and open interest remains at elevated levels (bitcoin OI ~$22.8bn; Chart 3), leading us incline that the sell-off was spot-driven, and that the high level of open-interest in the futures market could be due to ‘sophisticated’ institutional investors putting on cash-and-carry trades to farm carry (explaining why they are not flushed out during ‘mild’ mark et sell-off, and funding rate is low despite high OI), as opposed to amount of levered longs in the space.

Chart 3: BTC Futures Open Interest, from Source: Coinglass

Bitcoin dominance has been rather stable in this bout of sell-off, and we are leaning towards continued idiosyncratic moves in the space vs. correlated bull/bear market. Outperforming sector of the week continued to be metaverse/Web3 (SAND +88%, MANA +36%, GALA +93%, BAT +53%. ENJ +14%, ENS +88%).

On the institutional side, we continued to see TradFi expanding on their crypto hirings/offerings. Citi revealed plans to hire 100 staffers for beefed-up crypto division, while asset managers, such as Fidelity, UBS, and State Street confirmed that they were looking to offer products that provide exposure to cryptocurrencies. However, extent to which TradFi could participate in digital assets boom has been limited by regulatory uncertainty; US banking regulators issued a statement announcing a plan to clarify banks’ role in crypto over 2022 (a long time in fast-moving crypto space), while Hilary Clinton highlighted the potential of crypto to destabilize USD as global currency. On other side of the world, China has been further clamping down on crypto — this time on crypto media outlets.

On the macro side, the holiday-shortened week started predictably with Biden renominating Powell as Fed chair. The less dovish pick (vs. Brainard, the other leading candidate), comments from FOMC members about the potential to accelerate the tapering of asset purchase, November FOMC meeting minutes, and positive economic data (lowest level of weekly jobless claims since 1969) initially pushed treasury yields higher, and hurt tech stocks. The week ended with a bang (and not a bullish one), as news of a new COVID-19 strain in South Africa sparked worries over potential renewed lockdowns, although it is unclear whether the new variant is more resistant to current vaccines. Risk assets endured steep sell-off, including equities (ES -2.2%, NQ -2.1%; Oil -12%, VIX to 29), while safe haven assets (treasuries; 10s -18bp, gold, USDJPY) rallied. Going into the week, market would determine if the sell-off is overdone or the wall of worry remains; we have busy calendar, with heavy Fedspeaks, Thursday OPEC meeting, and Friday NFP.

(Nov 29, 2021, Top 5 Crypto KPI)

What is Happening?

Binance in talks with sovereign wealth funds for investments. Given its rocky history with regulators around the world, Binance has been seeking for strategic investments by sovereign wealth funds to buttress relationships with governments and to regain investor confidence. Its US affiliate has also been raising capital ahead of a potential public listing. Binance is supposedly recording daily transaction volumes of $170bn. Just a month ago, Binance’s rival, FTX, raised $420mio in Series B-1 funding round at $25bn valuation, from names that included Temasek, Tiger Global, Sequoia Capital, etc.


As we’ve written last week, we were not yet ready to catch a falling knife; the strong bounce off 100dma yesterday gave us more confidence of scaling into long-term positions, and we’d like to add more following the breakout from descending trendline. In the alts space, we continue to like trading sector rotations, and high-volume, high-volatility names, e.g. metaverse.

Good Luck!