Fake News vs Higher Yields


​​Crypto Market Week in Review (20 October 2023)

The market rebound from last week ended as stocks declined and bond prices plunged once more. Both oil and gold saw increases, driven by the increasingly concerning news from the Middle East. The 10-year US Treasury yield rose to a new cycle high, reaching almost 5%—the highest level since July 2007. That was just a few months before the housing collapse plunged the US economy into a recession. We're left wondering: what will give way this time?

10-year US Treasury yield (%)

Source: TradingView

The week's news was dominated by the quarterly reports of major US companies. It seems that high interest rates are beginning to impact US consumers. They continue to spend on necessities, such as Procter & Gamble products, and cheap entertainment, like Netflix streaming services, but are hesitating on big-ticket purchases like cars. Netflix shares surged 17% on the day of its quarterly report, buoyed by robust subscription numbers. Meanwhile, Tesla shares tumbled 10% in a day after their quarterly report showed that price cuts had significantly eroded margins, falling short of expectations. “Tesla is an incredibly capable ship… We’re not going to sink, but even a great ship in a storm faces challenges,” commented Elon Musk.

The crypto world was in turmoil due to false rumors about a spot Bitcoin ETF but still outperformed many other assets. Like gold, cryptocurrency has resisted the impact of rising rates (at least for now). Bitcoin gained 9% from the close of the previous Friday to this Friday morning. Ethereum increased by 2%. The Grayscale Bitcoin Trust continued to narrow its discount to NAV, now at 13%, its lowest since August 2021. Solana soared by 19%, leading the pack among major altcoins. XRP rose by 7% after the US regulator dropped charges against the Ripple CEO, but it's still almost 40% below its July peaks.

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Bitcoin's implied volatility, as indicated by the DVOL index, spiked on Monday due to the erroneous news about a spot ETF and remained elevated compared to the close of the previous Friday, even after the news was refuted. In contrast, Ethereum's implied volatility dipped this week and now sits substantially below Bitcoin's. At present, Ethereum's DVOL is about 15% less than Bitcoin's DVOL. Calls dominated the options trading and open interest for both Bitcoin and Ethereum. It's worth pondering if the volatility market is undergoing its much-anticipated revival; after all, Bitcoin's DVOL this week achieved its monthly peak, albeit still hovering near historical lows.

Bitcoin DVOL index

Source: Deribit

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