Crypto Bucks the Trend: Market Weekly Review from TokenInsight

• This week, the momentum from within the crypto market and the macro anti-inflation demand became catalysts to push up asset prices, while the impact from regulation became insignificant.

• Judging from the relevant data on derivatives, the market expectation is obviously higher than last week, and the fluctuation is also relatively lower.

• Affected by persistent high inflation, investors' risk appetite is returning to anti-inflation assets, which may be one of the important reasons for the price of cryptos to return to a high level. High inflation, which is difficult to end in the short term, will further push investors to purchase high-yield anti-inflation assets.

Mainstream Cryptos "Back to Peak"

Unlike last month, the market in October was not affected by the expected liquidity crunch. Although the US dollar and US debt yields continued to strengthen, a large number of purchases from the crypto spot market significantly raised asset prices and brought the overall market value of the crypto market back to $2.28T, returning to the level of early September.

In terms of trading volume, the daily trading volume of the spot market in early October continued to rise, from $36.82B to $80B on Oct 7. Buying by institutional investors played an important role: on Oct 6, block traders bought $1.6B of bitcoin spot in five minutes through market price orders.

It is worth noting that although Huobi Exchange abandoned the Chinese market due to regulatory crackdown, its spot trading volume remained in the top 3 this week, with the highest turnover reaching $7.8B this week.

At the same time, market speculation sentiment has dropped significantly. Historical volatility is one of the indicators to monitor market speculation sentiment. From the perspective of historical volatility, as of Oct 8, the daily historical volatility of BTC and ETH decreased by about 10% and 30% respectively compared with last week.

From the perspective of options market performance, the implied volatility changes reflect that the options market, which is more concentrated by professional investors, has maintained a relatively stable attitude towards the rapid shift in the crypto market, but the trading of call options is the theme of this week. From Oct 1 to Oct 7, Bitcoin call options trading volume accounted for more than 70% of the total market share, and exceeded 80% at the highest point, which is rare throughout the year. Compared with Bitcoin, the share of Ethereum call options trading is slightly lower, but it also exceeds 60% most of the time.

From the perspective of futures premiums, the recovery of market confidence is more obvious than last week. The "gap" of the term structure has been smoothed out, on the other hand, the premium of medium and long-term futures has risen significantly compared to last week. The above phenomena all show that investors have considerable bullish sentiment and are willing to pay more premiums to lock in future spot profits.

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

In terms of supervision, the supervision of the crypto industry by major countries is being further improved with the arrival of October.

South Korea's tax on cryptos is in progress. The European Central Bank is also trying to speed up the adoption of the MICA. in the United States, Coinbase has led the design of a draft regulatory framework for submission to lawmakers. And the US Department of Justice has established a national cryptocurrency enforcement team to address potential crimes in cryptocurrency transactions. From a global perspective, the IMF has issued a set of actionable policies for emerging markets and developing economies to ensure financial stability at a time when cryptocurrencies are adopted globally.

In addition, SEC Chairman Gary Gensler said at a House hearing on Tuesday that the SEC has no plans to "ban" bitcoin and will not follow other countries in banning cryptocurrencies. He pointed out that the government's focus is to ensure that the industry complies with investor and consumer protection rules, anti-money laundering regulations and tax laws.

On the macro side, the risk of market liquidity tightening has eased significantly, while a new round of liquidity flooding may be coming soon.

The Fed's attitude to reducing liquidity has been repeated. Meister, chairman of the Cleveland Fed, said the Fed's forecast did not show a sharp rise in interest rates. The Fed's new strategy is that it will not act until the average inflation rate reaches 2% and basically completes some of its tasks. With US inflation still high above 5% and inflation expectations not falling in the short term, demand for inflation-resistant assets will effectively push up the price of cryptos.

The European Central Bank is studying a new bond-buying program to prevent sharp market turbulence when its emergency bond-buying program expires next year. The new program does not yet set a ceiling for debt purchases, but it could be higher than the current $20 billion per month program. The release of liquidity in Europe, one of the main markets for trading cryptos, is expected to lead to a new wave of investment in cryptos.

This week, due to the combined influence of persistently high inflation expectations, the uncertainty of the US debt ceiling policy, the statements of the Federal Reserve on liquidity contraction and the strengthening of internal activities in the crypto market, investors have begun to turn to cryptos despite the historically high US debt yields, and regulatory risks have become no longer significant under the strong demand of investors for cryptos. However, compared with September, the general clarity of regulatory boundaries and moderation of attitudes have reduced investors' risk expectations when investing in cryptos, which may be one of the reasons for the good performance of the crypto market in the first week of October.

However, behind the high market rally, short-sellers are also stirring. On the CME exchange, short positions have increased significantly, while the large put options block trading with a size of more than 2500 BTC due on October 22 also indicate that the market may have downside risks from short-sellers and need to be treated with caution.