Crypto Market Week in Review (27 January 2023)
The first trading week of the Chinese New Year was positive for the markets. Stocks advanced, mostly reflecting better-than-expected quarterly reports. Tesla was a star of the week, rallying by 11% on the day of its quarterly report. Financials were lackluster, but positive comments about a demand strength supported the stock after it lost about 40% in the last 4 months (since the end of September). Bonds were flat after the unusually big rally so far this year.
The most intriguing macro news of the week was delivered by the central bank of Canada. The Bank of Canada expectedly increased its key rate by 0.25% but said it’s the final hike before a pause. “If economic developments evolve broadly in line with the MPR outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.” – the Bank said in a press release. Given the similarities and interdependence of the US and Canadian economies, that looks like a dovish hint before the Federal Reserve monetary policy meeting due the next week. Despite this year's rally, US Treasuries still offer a significant yield premium to Canadian government bonds, suggesting a further upside to bond prices (or a downside in terms of rates).
10-year Government Bond Yields of the US and Canada
Cryptocurrencies mostly corrected after the recent rally. Bitcoin was roughly flat, but Ethereum declined by 4% since the last Friday. Most altcoins were slightly down too.
Muted spot moves led to the stabilization of the volatility market. The implied volatility of both Bitcoin and Ethereum (as measured by DVOL indexes) barely changed during the week. The volatility curve remained flat.
Bitcoin DVOL Index
Unlike the Merge, the coming Shanghai update so far fails to ignite any significant speculative interest in Ethereum options. Options traders have rolled less than half of the positions matured at the year-end, and the options open interest remains at July levels. The implied volatility ratio of Ethereum to Bitcoin significantly declined this year, dropping to 1.15 from 1.33 as of December 31.
Ethereum Options Open Interest
In other news of the week, Deribit considers relocation to Dubai. Bloomberg reported that the exchange planned to move from Panama to Dubai in order to be regulated (or to be perceived by clients as regulated). We wonder if perceived better regulation will reignite client interest in option trading.
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