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).

Chart 1

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.

Chart 2

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).

Chart 3

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]

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.

Chart 5

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.

Chart 6

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).

Chart 7

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