Chart of the Week: BTC and ETH Still the Perfect Pair?

• The two largest cryptocurrencies, BTC and ETH, had been moving very much in lockstep, with a correlation (rolling 90-day) of around 0.9 or above (1 would be a perfect correlation), for most of the year. However, since mid-July, the correlation dropped sharply, reaching a low of 0.6 in September. It has since started to crawl back upwards. 

• The Merge was an idiosyncratic factor specific to ETH back in September and intensifying risk-off sentiment brought about in large part by macro risks (e.g. interest rate hikes, geopolitical tensions) might also have favoured BTC over ETH for some traders, causing the two to move less in lockstep. Our recent report Alpha Navigator (Sep 2022) provides a more in-depth analysis of macro trends and correlations between different crypto coins.

Crypto Fund Flow Tracker

• The aggregated exchange balance for BTC dropped sharply over the past week, perhaps a sign of increasing investor inclination to hold. No significant movements were seen in OTC (over-the-counter) desks’ balance for BTC. OTC desks are typically used by larger investors.

Crypto Derivatives Pulse

• Following ETH, the put-call ratio for BTC is also now at a yearly low, potentially implying less cautious sentiment. Additionally, implied volatilities (vols), another often used measure of risk, are at their lowest since June; 1-month implied vol currently stands at 59.3% (vs. 65.0% a week ago) and 73.0% (vs. 82.7% a week ago) for BTC and ETH, respectively. 

• Perpetual futures funding rates continue to print positive (longs pay shorts) for BTC, while ETH’s are close to neutral after streaking negative (shorts pay longs) for the past 2-months.

• Leveraged traders’ net-short position in CME Bitcoin futures appears to have reversed course and has been increasing recently.

• Leveraged traders are typically hedge funds and various types of money managers, including commodity trading advisors and commodity pool operators. The traders may be engaged in managing and conducting proprietary futures trading, and trading on behalf of speculative clients.

• The asset manager category consists of institutional investors, including pension funds, endowments, insurance companies, mutual funds, and those portfolio/investment managers whose clients are predominantly institutional.

Crypto Price Movements

As of 10 Oct 2022     Source: CoinGecko.com, Crypto.com Research

Crypto News Highlights

• MakerDAO, issuer of the stablecoin DAI, has allocated US$500M for investing in U.S. Treasury and corporate bonds, to diversify its reserves. The funds will come from its overcollateralised stablecoin, with 80% going to short-term U.S. Treasury bonds and 20% to investment-grade corporate bonds.

• Fidelity Investments is launching the Fidelity Ethereum Index Fund, which currently has US$5M in assets. The fund will track the Ethereum price, is available to accredited investors, and the minimum investment is US$50K.

• Marathon Digital, one of the largest stock-exchange listed Bitcoin miners by market cap, revealed an exposure of US$81.3M in the now-bankrupt Compute North, which was one of the biggest operators of crypto-mining data centres.

• Crypto asset management firm Grayscale is launching Grayscale Digital Infrastructure Opportunities (GDIO), a private co-investment product focused on Bitcoin mining hardware. GDIO will invest in mining equipment at what Grayscale expects to be discounted prices due to the crypto winter. The equipment will then be used to mine and sell Bitcoin, generating income for investors.

• BNB Chain, the blockchain of Binance, suspended all deposits and withdrawals after its cross-chain bridge was exploited. It is estimated that the attackers made off with US$100M worth of cryptocurrency. 

Catalyst Calendar

* Forecasts from CME FedWatch Tool; dates shown are for Eastern Time

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