First Mover Americas: Bitcoin Skew Shows Put Bias Intact; Focus on RSI

The latest moves in crypto markets in context for May 3, 2022.Read MoreFeedzy

Good morning, and welcome to First Mover. Here’s what’s happening this morning:

Market Moves: Bitcoin’s put-call skews continue to exhibit fear of a deeper price drop. Cardano sees renewed accumulation by whales. Terra-based lending and borrowing protocol Anchor moves to dynamic earn rate.

And check out the CoinDesk TV show “First Mover,” hosted by Christine Lee, Emily Parker and Lawrence Lewitinn at 9:00 a.m. U.S. Eastern time.

Sergey Vasylchuk, founder and CEO, Everstake

Molly White, editor, Wikipedia

Fear reigns supreme in the crypto market as Federal Reserve (Fed) is set to kick off a two-day meeting later Tuesday that is likely to end with the central bank announcing an outsized 50 basis point (half percentage point) rate hike and plans to shrink its nearly $9 trillion balance sheet.

Bitcoin’s put-call skews, or implied volatility (vol) of calls minus puts, continue to hover above zero, indicating stronger demand for puts or bearish bets.

“Put skew retains a strong bid,” Adam Farthing, chief risk officer for Japan at crypto trading firm B2C2, wrote in a market update published Monday. “Risk reversals [r/r] are better bid again for puts (25delta r/r for BTC and ETH at 7.0 and 9.0 respectively), reflecting both the oversupply of call side vol, and the general macro concern that further USD strength will correlate with higher generalized volatility.”

Bitcoin’s put-call skews (Skew)

Data tracked by the crypto derivatives research firm Skew show the one-week, one, and three-month put-call skews continue to March higher. The six-month gauge has come off from 6% to 3% in recent days, perhaps a sign of renewed optimism about cryptocurrency’s long-term prospects.

“We’re seeing consistent buying on late 2022/early 2023 options, which tells us that investors are feeling a little gloomy now, but hopeful for later in the year,” Michael Safai, managing partner at crypto proprietary trading firm Dexterity Capital said in an email. “Perhaps the expectation is, by then, the results of the Fed’s rate experiment will be clear and macro sentiment will improve.”

Safai added that the upside momentum for bitcoin will need to come more from stock performance. The stock market’s near-term prospects look bleak as expected tightening by the Fed is likely to cause demand destruction. The global manufacturing activity, measured by the Purchasing Manager’s Index, has slipped into contraction, as The Daily Shot tweeted.

Per B2C2, crypto’s dependence on equities looks elevated this week as the Fed, BoE, and RBA are scheduled to announce rate decisions. Further, the all-important U.S. nonfarm payrolls figure will be released this Friday. “A big number could be interpreted as enabling Powell to hike more aggressively this year,” B2C2’s Farthing said.

Focus on 4H RSI

Traders looking for clues on whether bitcoin will bounce to $40,000 to drop to $37,000 should keep a close eye on bitcoin’s 4-hour (4H) chart relative strength index (RSI). That’s according to technical analysis by Nick Mancini, analyst at crypto sentiment analytics platform Trade the Chain.

Bitcoin’s 4-hour chart with relative strength index (CoinDesk, TradingView)

“Since mid-April, 4h BTC’s RSI has been hovering beneath the current trend. It is currently testing the trend, but has yet to make up its mind,” Mancini said in a weekly newsletter shared with CoinDesk on Monday. “If RSI is rejected again, along with the sentiment, we would expect the price to drop to $37,000 (white box). If RSI breaks above the trend, then we would likely see $40,000 tested.”

Cardano whales accumulate

Cardano (ADA) addresses holding one million to 10 million ADA have increased their balance by 196 million coins in five weeks, according to data tracked by blockchain analytics firm Sentiment.

The renewed accumulation by whales after a seven-month period might put a bid under the battered cryptocurrency.

ADA recently dipped to $0.735, the lowest since February 2021, according to CoinDesk data.

Anchor protocol shifts to dynamic earn rate

Terra-based lending and borrowing protocol Anchor is moving towards a flexible and dynamic deposit rate, abandoning the long-held policy of offering a fix rate of around 20%.

The rate will adjust dynamically by 1.5% each month depending on the changes in the protocol’s yield reserves. The earn rate could increase if the reserve rises and vice versa.

“The addition of a semi-dynamic Earn rate will contribute to the long-term sustainability of Anchor & will benefit users of the protocol by enabling yield reserve growth while continuing to provide an attractive yield on UST,” DeFi content platform Stakingbits noted.

Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Stephen Alpher.


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