This week is undoubtedly the most crucial week in 2024Q1. Major central banks, led by the Bank of Japan and the Fed, will announce interest rate decisions this week, setting the tone for monetary policies in the coming months.
Due to the impact of safe-haven sentiment, the prices of both BTC and ETH have experienced a certain degree of pullback, but traders are more optimistic about BTC.
Benefiting from the early end of the deleveraging of altcoins, the volatility of altcoin prices and the liquidation of altcoin derivatives are expected to impact the market less.
BTC
Due to macro uncertainties and previous large fluctuations, traders still price BTC’s potential volatility relatively high. Traders expect the 7-day price movement range of BTC to reach 9.78% and the 30-day price movement range to reach 20.33%. Despite the high expected volatility, traders also expect the volatility of BTC to weaken shortly based on the volatility term structure, which makes the front-month implied volatilities lower than the far-month implied volatilities.
From the perspective of skewness, traders seem to believe that price declines and pullbacks will bring about volatility. Still, the duration of this round of pullback will be “relatively short” and mainly triggered by risk aversion to macro uncertainty. In the medium to long term, traders’ bullish sentiment towards BTC has not been significantly affected, and expectations of interest rate cuts still dominate investors’ judgments on BTC’s medium to long-term trend.
The latest dealers’ gamma distribution further supports the expected wide range of BTC price fluctuations. The new gamma peak of BTC price is around $65k, while another gamma peak is around $75k. With the arrival of the quarterly settlement, the influence of market makers on BTC price movement is gradually recovering, which allows BTC to obtain sufficient support from market makers’ hedging behaviour when the price falls. Still, it is also difficult to break through $75k.
The on-chain data shows that spot investors’ enthusiasm for buying BTC has declined after months-long buying. Although the number of addresses holding more than 100 BTC is still increasing, at the same time, the number of addresses holding more than 1,000 BTC has significantly decreased, which means that many big whales choose to sell when the BTC price breaks through new highs. Big whales’ lack of purchasing power also leads to insufficient power for further BTC price increases.
Overall, although investors are still cautious about the possible large fluctuations in BTC prices, the possibility of BTC price stabilization is increasing due to the hedging effect. Indeed, the price of BTC has fallen compared to the previous high, but considering the bullish sentiment of investors in the medium and long term, holding BTC is still a better choice.
ETH
Similar to BTC, traders also expect the price of ETH to maintain relatively high volatility levels shortly (10%/7days, 20.32%/30days). However, compared to BTC, traders are less optimistic about the future performance of ETH.
The demand for ETH put options has affected all options except for the quarterly options, and bearish sentiment has dominated in front-month options. Although bullish sentiment still has a relative advantage in the far months, it also means that only the more liquidity brought by the expectation of interest rate cuts may provide sufficient support for the price of ETH.
In addition, traders’ pricing on ETH tail risk has also risen, returning to the annual average level and significantly higher than that on BTC tail risk. The above situation means that investors expect “certain events” to impact the price of ETH significantly, and pessimistic expectations for spot Ethereum ETFs may be one of the “triggers”.
The latest dealer’s gamma on ETH indicates that the trading behaviour of market makers makes it hard to provide sufficient support for the price of ETH at the current price level. Although ETH can obtain some support around $3,000, this also means a more than 10% drop. On the upward path, the selling hedging behaviour of market makers will cause significant resistance to the price performance of ETH shortly.
In the spot market, ETH holders’ staking and selling behaviour has led to a continuous decline in the number of addresses holding more than 32 ETH, resulting in a weaker performance of ETH relative to BTC. From the perspective of exchange rate term structure, investors also expect that although the performance of ETH may strengthen in the short term, the weak performance of ETH compared to BTC will continue in the medium to long term. Therefore, if necessary, selling some ETHs is acceptable.
Altcoins
The high leverage of altcoins has always been an important source of risk in the cryptocurrency market. Last weekend’s price drop caused most of the high-leverage altcoin positions to be liquidated, resulting in the annualized funding rates of perpetual contracts for the vast majority of altcoins falling below 30%, a relatively safe level in the bull market.
Considering the possible impact of macro uncertainties on the market this week, deleveraging altcoins in advance is undoubtedly beneficial for the stability of the crypto market. Even though speculation on memecoins continues, considering that altcoins account for less than 20% of the total market share, their risks are relatively controllable under low leverage.
