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Quick Macro Update
QCP Capital


Some much-needed positivity in the markets from last week with asset prices ticking higher across the board

ETH was a notable outperformer, trading to a 1,664.3 high (+26% from the start of the week). BTC traded to 21,080 high (+10% from the start of the week).

The biggest surprise over the weekend was DOGE which rallied over 90% on the back of excitement over Elon Musk's takeover of Twitter. Musk's tweets have created price swings in the past, even suggesting using DOGE as payment for a twitter subscription.

Rate hikes

The narrative of a Fed pivot is starting to take shape with markets now pricing in a lower probability of a 75bps hike in December, from about 55%, down to 45%.

Other central banks globally have already begun to show dovishness with the BoC being the first to hike +50bps (vs +75bps expected) and the ECB easing their forward guidance, suggesting that they are nearing the end of their hiking cycle earlier than expected.

With markets shifting expectations towards a dovish outcome at the upcoming meeting, we are concerned about a negative market reaction to persistent hawkishness from the Fed.

BTCUSD and XAU Correlation

Global macro forces and the dominant inflation narrative has driven BTC's correlation with Gold to a high, while the positive correlation with equities has begun to decrease (Chart 1).

Chart 1

The rush to buy BTC and ETH call options

In the options space, we saw vols spike as spot rallied. We believe the market has been significantly discounting topside for the last few weeks and the desk saw a rush to buy calls as spot ticked higher.

1m BTC ATM currently at 56 and 1m ETH ATM at 82. Along with the spot move higher, skews have continued to rally (become less negative) and now trade near the highs of the quarter with 1m BTC RR at +0.2%. This is significant as both BTC and ETH have had a persistent put skew since the downturn in prices this year.

We expect vols to be bid into FOMC (this Thursday, 3 Nov) and CPI (next Thursday, 10 Nov).


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