Crypto Expected to “Outperform” if Inflation Persists, Bitcoin and Ether Options OI Trend Upwards To New Highs

Still, froth and sky-high valuations coupled with inflation and the resultant tapering could set the markets up for a “significant correction.”


The total cryptocurrency market cap hasn’t seen $3 trillion since Nov. 15 as Bitcoin continues to struggle around $56,000.

ETH meanwhile has been outperforming Bitcoin, which could be on the back of the possibility of an Ether ETF as Kelly Strategic Management filed for approval this week.

While Ether has been leading, having surged past $4,775 to mark the beginning of December, Bitcoin and ETH volatility have dropped around 5%-10%.

Last week, the market had a knee-jerk reaction to Covid 19 variant Omicron headlines, as well as Federal Reserve Chair Jerome Powell recognizing high inflation and indicating an accelerated taper. But the market soon bounced on reports of Omicron symptoms being mild, and December started on a bullish note.

In the futures market, open interest (OI) on Bitcoin futures contracts, however, has now fallen to $22.5 bln at the mid-October level. Meanwhile, OI on Ether perpetual contracts is still high at $12.55 bln.

In the options market, OI on Bitcoin contracts is showing resilience at $12.35 bln at last month level, while for ETH, it’s near its ATH at $7.61 bln, a sign of positive sentiment for the asset.

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ETH options OI broke the previous highs from May on Dec. 1, and trading volume has also recovered well, too as it crossed $1 billion in daily volume on Nov. 30.

“Options market is heavily discounting calls with risk reversals still skewed to puts in spite of the spot bounce. Could be a decent opportunity to buy some calls if you have a long view into 2022. We’ve now flipped to a topside skew for both BTC and ETH,” said QCP Capital.

While some market participants doubt that the bull market will continue, others are not yet convinced that we have topped as volume has started climbing back.

Some altcoins are enjoying their own bull scenarios. LUNA broke out strong this week, making a new all-time high after 7.2 million LUNA burned this week, likely to be a catalyst for the move. ALGO, meanwhile, is having its much-anticipated conference this week, where it announced new ecosystem funds being set up. LUNA 0.07% Luna Coin / USD LUNAUSD $ 0.01
$0.000.07%
Volume 0 Change $0.00 Open $0.01 Circulating 1.71 m Market Cap 11.49 K
3 w Bitcoin and Ether Dump More Going Into Year-End, ETH Killers Showing Great Momentum 3 w UST Grows 55x to Become the 4th Largest Stablecoin, Terra DeFi Ecosystem Amasses $18B in Assets 1 mon Is This The Beginning of the Santa Rally? Markets Jump in Asia Session
ALGO -5.90% Algorand / USD ALGOUSD $ 0.91
-$0.05-5.90%
Volume 418.08 m Change -$0.05 Open $0.91 Circulating 6.53 b Market Cap 5.93 b
1 mon Over 4.4 Billion Added in Total Stablecoin Supply in the First Week of December 1 mon Crypto Expected to “Outperform” if Inflation Persists, Bitcoin and Ether Options OI Trend Upwards To New Highs 3 mon Tether (USDT) Market Cap Surpasses $70 Billion, Majority Issued on Tron Blockchain

In addition, the exchange balances of BTC and ETH have been on a decline since April 2021, as per Delphi Digital. While BTC balances on exchanges are currently at a 3-year low, ETH balances are at a 2-year low.

“The rise of DeFi has allowed users to seek yields on their assets rather than keeping them on an exchange.”

Another bullish sentiment is coming from the regulatory front in India, where the government isn’t looking to ban crypto but to regulate it as assets.

“Even if the bill is 30-40% positive, investors — family offices, traditional VC firms — will put more money into India, if something positive comes out,” WazirX’s head of public policy, governance issues, and content, Aritra Sarkhel, told Business Insider.

But on the flip side, the crypto market has been on an uptrend ever since March 2020 sell-off, and froth is around its peak, with valuations sky-high. Coupled with this, tapering and the subsequent increase in interest rate could make investors risk-off.

“Incredible valuations in both traditional and crypto markets coupled with inflation levels that haven’t been seen in decades could be setting macro markets up for a significant correction,” said QCP capital, sharing the views of trading legend and Bitcoin investor Paul Tudor Jones.

“Taking profits on deep in-the-money positions is a logical step to take. With that said, he expects crypto to outperform if the global economy faces persistent inflation.”

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