It’s been a rough start to the year for all risk assets. The outlook on further tightening monetary policies led Nasdaq to suffer its worst week since March 2020, while crypto has seen a correspondingly dreadful start to the year. All the largest cryptocurrencies have seen negative returns so far this year. BTC has outperformed most altcoins recently, as investors seem to be rotating towards safety.
Fear is evident in the BTC derivatives market. The futures basis has reached lows not seen since July, while funding rates in the perpetuals have mostly remained below neutral in the last month. This suggests that traders are currently reluctant to enter longs. Similar tendencies are present in the options market, where the skew indicates high demand for hedging through near-dated puts. Meanwhile, the implied volatility was unusually low last week in the at-the-money options. The IV has climbed over the weekend but remains low compared to what we’ve seen in the past year. Traders are seemingly less willing to commit to directional bets. All in all, the derivatives market currently signals high uncertainty among traders.