Market Update: 28 July 2021
Another try at breaking 40k-42k in BTCUSD today despite Amazon’s firm denial of the rumors about them accepting crypto as a mode of payment.
The QCP options desk saw the same pattern of flow in the options market that occurred before the Monday rally, a wave of call buying (over 2,000 BTC notional at 42k-44k strikes across 3-week expiries).
In addition, there was an unusual spike in the FTX margin lending rate to 300% (Chart 1) in line with the large spot buying on FTX at the same time.
However, the vol market reacted quite differently this time round with signs of stress to the topside. Unlike the previous rally which only saw front end vols spike while the back-end remained stable, this time back-end vols moved higher tandem with the spike in front-end vols (Chart 2).
There was also a substantial shift in skew towards the upside (Chart 3) as market anticipates a potential rally above 40k pivot level in BTCUSD.
Technical analysis for BTC:
[Refer to Chart 4]
In our wave count, this rally is the last part (Wave Z in a zig-zag WXYZ pattern) of a corrective Wave 4 (before Wave 5 lower). We are likely to see some resistance here at the TDST resistance level (40k) plus a potential TD 9 sell signal tomorrow.
In spite of this resistance, this Wave Z could be a longer one (currently at wave iii of iv in the Z rally) which would see BTC break 42k and potentially even extend to 50k (as per our price analog from the previous two posts). That last burst higher would end wave 4 to be followed by a larger Wave 5 lower.
Technical analysis aside, our sense is that the market will keep looking to trade within this 30–40k range in the near-term. Into Friday’s month-end expiry, we expect 40–42k to hold as the OI peaks here with 11k BTC notional (Chart 5). We expect this level to act as a magnet into Friday’s expiry with the long gamma in the market pinning it to this price region.
Regarding ETHBTC, we are more bullish ETH over BTC and look for this cross to trade higher over the medium-term. We are looking at the 0.055 level as support for the Wave 4 triangle to end — and Wave 5 higher to begin. This coincides with our parabolic line support that intersects 0.055 on 4–5th Aug, perfectly aligned with the EIP-1559 date (Chart 6). For ETH itself, 2.4k is the range resistance that would need to break to see a move higher. ETH too will print a TD 9 sell tomorrow (Chart 7).