Crypto Bucks the Trend: Market Weekly Review from TokenInsight

• This week, the crypto market’s internal momentum and macro anti-inflation demand catalyzed asset price increases, overshadowing regulatory impacts.
• Examining derivative data, market expectations are notably higher than the previous week, with relatively subdued fluctuations.
• Persisting high inflation prompts investors to favor anti-inflation assets, a key factor propelling crypto prices. The prolonged high inflation, challenging to resolve quickly, continues to drive investors towards high-yield anti-inflation assets.

Mainstream Cryptos “Back to Peak”

In contrast to the previous month, the October market remained unaffected by the anticipated liquidity squeeze. Despite the strengthening of the US dollar and US debt yields, substantial buying activity in the crypto spot market significantly lifted asset prices, restoring the overall crypto market value to $2.28 trillion, akin to early September.

Spot market trading volume in early October surged from $36.82 billion to $80 billion on October 7. Notably, institutional investors played a pivotal role, as evidenced by block traders executing a $1.6 billion bitcoin spot purchase in five minutes via market price orders on October 6.

Remarkably, Huobi Exchange, despite exiting the Chinese market due to regulatory pressures, maintained a top-three spot trading volume position this week, reaching the highest turnover of $7.8 billion.

Simultaneously, market speculation sentiment has experienced a notable decline. Historical volatility serves as a key indicator for monitoring such sentiment. Analyzing historical volatility, as of October 8, the daily historical volatility of BTC and ETH dropped by approximately 10% and 30%, respectively, compared to the previous week.

Assessing the options market performance, implied volatility changes indicate that the options market, primarily influenced by professional investors, maintains a relatively stable stance amid the swift shifts in the crypto market. However, this week’s predominant theme is the trading of call options. Between October 1 and October 7, Bitcoin call options accounted for over 70% of the total market share, reaching over 80% at its peak— an unusual occurrence throughout the year. While Ethereum call options trading share is slightly lower, it consistently exceeds 60%.

In terms of futures premiums, market confidence recovery is more evident compared to the previous week. The term structure “gap” has been smoothed out, and the premium for medium and long-term futures has notably increased from the previous week. These trends collectively indicate substantial bullish sentiment among investors, as they demonstrate a willingness to pay higher premiums to secure future spot profits.

Multiple Factors Push up Crypto Prices, Regulatory Impact is no Longer Significant

In October, major countries are intensifying their oversight of the crypto industry, enhancing regulatory measures to ensure compliance and stability.

South Korea is actively advancing crypto taxation. The European Central Bank is expediting MICA adoption. In the U.S., Coinbase is leading the drafting of a regulatory framework submitted to lawmakers. The U.S. Department of Justice establishes a national cryptocurrency enforcement team to tackle potential crimes in crypto transactions. On a global scale, the IMF releases actionable policies for emerging markets and developing economies to safeguard financial stability amid the global adoption of cryptocurrencies.

Furthermore, during a Tuesday House hearing, SEC Chairman Gary Gensler emphasized that the SEC does not intend to “ban” bitcoin, diverging from the approach of some other countries. Gensler highlighted the government’s priority, focusing on ensuring industry compliance with investor and consumer protection rules, anti-money laundering regulations, and tax laws.

From a macro perspective, the concern regarding market liquidity tightening has notably diminished, while indications suggest a potential upcoming round of liquidity influx.

The Federal Reserve’s commitment to reducing liquidity has been reiterated. Cleveland Fed Chairman Meister noted a lack of forecasted steep interest rate hikes. The Fed’s updated strategy entails inaction until the average inflation rate hits 2%, completing specific objectives. With US inflation persistently above 5%, and short-term inflation expectations unchanged, demand for inflation-resistant assets is poised to boost crypto prices.

Simultaneously, the European Central Bank is exploring a new bond-buying program post its expiring emergency initiative, with an undetermined ceiling potentially surpassing the current $20 billion monthly plan. The expected liquidity injection in Europe, a major crypto trading market, is anticipated to drive a fresh wave of crypto investments.

This week, driven by persistent inflation expectations, uncertainty surrounding the US debt ceiling policy, Federal Reserve statements on liquidity contraction, and heightened activity within the crypto market, investors are turning to cryptocurrencies despite historically high US debt yields. Regulatory concerns have become less significant, given the strong demand for cryptos. However, compared to September, clearer regulatory boundaries and a more measured regulatory stance have tempered investor risk expectations, potentially contributing to the positive performance of the crypto market in the first week of October.

Nevertheless, beneath the market rally, short-sellers are becoming active. On the CME exchange, there’s a notable increase in short positions, and the substantial put options block trading, with a maturity date of October 22 and a size exceeding 2500 BTC, suggests potential downside risks from short-sellers. Caution is advised.