U.S. Federal Reserve (Fed) policy and macroeconomic factors are no longer the focal points for crypto traders.
That's the message from the derivatives market, which shows no signs of a let-up in demand for puts, or bearish bets, tied to bitcoin (BTC) and ether (ETH) in the wake of the dovish Fed minutes released Wednesday.
The persistent put bias indicates the market is squarely focused on contagion sparked by the downfall of Sam Bankman-Fried's FTX, formerly the world's third-biggest crypto trading platform, and is unlikely to find a bottom solely on the back of improving macro conditions.
"Crypto is still very much-event risk driven, reacting to news/rumors about the health of major crypto lender Genesis," Dick Lo, the founder and CEO of quant-driven trading firm TDX Strategies, said.
The crypto market, roiled by the Fed's aggressive liquidity tightening, has long been waiting for the central bank to signal a shift away from rapid-fire interest rate hikes. The market got what it wanted yesterday.
"A substantial majority of participants judged that a slowing in the pace of [interest rate] increase would likely soon be appropriate," the minutes said.
The minutes also hinted at a lack of support for Chairman Jerome Powell's post-meeting “higher rates for longer" statement, sending the U.S. dollar and Treasury yields lower and stocks higher.
Yet, bitcoin and ether put-call skews, which measure the cost of bullish calls relative to bearish puts, remain entrenched in negative territory, implying a bias for puts.
Both short-term and long-term skews have barely bounced in favor of calls since the release of the Fed minutes.
"Clients are not selling their holdings, but want to hedge the downside," Lo said.
South Korea-based blockchain analytics firm CryptoQuant said, "The ongoing financial problems of Genesis Trading, which needs $0.5–1.0B from outside investors to stay in business, keep pushing the price of bitcoin down."
Genesis, one of the many firms exposed to FTX, has hired a restructuring adviser after halting withdrawals. FTX filed for bankruptcy protection on Nov. 11. Genesis is owned by DCG, which is also the parent of CoinDesk.
Bitcoin traded near $16,580 at press time, having failed to establish a foothold above the $17,000 mark early today.
According to some chart analysts, the largest cryptocurrency by market value is headed toward $13,000.
"Recent volatility in the cryptocurrency market has generated a long-term breakdown in bitcoin below key support near $18.3K, increasing downside risk to support from the 2019 high (~$13.9K) over the coming months," Katie Stockton, founder and managing partner at Fairlead Strategies, said in a note to clients.
"The bear market cycle remains in force, with negative long-term momentum allowing oversold conditions to be sustained," Stockton added.