Market Volatility Stronger, Recent Expectations Lower: Market Review From Blofin

Blofin

Market volatility rose significantly due to the sharp drop in mainstream digital asset prices on September 7, but has now stabilized. Volatility spreads have narrowed significantly, with Ether volatility spreads turning positive first as of September 10, indicating that the market will likely remain in a downward range for the time being.
  • Affected by the sharp drop in the prices of mainstream cryptos on Sep 7, market volatility has increased significantly, but it has now stabilized. The difference of volatility has narrowed significantly, and as of Sep 10, the Ethereum's difference of volatility has taken the lead in becoming positive, indicating that the market may remain in the downward range for the time being.
  • SOL and other non-Ethereum public chain tokens are less affected by market fluctuations, and there is obvious differentiation within the market.
  • The actions of Southeast Asian regulators have frustrated the overseas distribution of some exchanges, but the legalization process of cryptos is advancing rapidly in Ukraine, El Salvador, Switzerland and other countries. Sweden, Mexico and other countries have also shown a more moderate attitude towards cryptos.
  • Liquidity tightening is expected to be postponed again. Considering the attitude of regulators in various countries, confidence in the crypto market is still relatively sufficient.
  • As the quarterly delivery season approaches, high market volatility will continue.

Mainstream Cryptos Plummeted, Causing Market Volatility to Soar

On Sep 7, the crypto market ended its low volatility for nearly three weeks. Affected by the rapid decline in mainstream crypto prices, the market experienced a sharp rise in volatility and returned to the medium-high volatility range. Bitcoin volatility rose above 80, while Ethereum volatility rose above 110 and is currently stable at a high level. Bitcoin prices fell 6.3% this week, while Ethereum prices fell slightly more, at 9.79%.

At present, the general view in the market is that the crash on Sep 7 was "accidental" due to multiple factors. On the one hand, due to the strong US dollar against the trend, investors' risk appetite declined, which tended to be high profit-taking. Before the crash on the evening of Sep 7, some large investors placed orders on Coinbase to sell their positions that afternoon. Against the background of long-term low volatility, the degree of long-side leverage is high, and the sales of large investors lead to a chain of liquidation, stop loss and stampede in the spot and derivatives markets. A similar situation also has occurred in January, due to miners selling at a profit.

On the other hand, some investors also believe that the decline was caused by the attraction of funds from high-speed public chain tokens such as Solana, or due to the increase in risk aversion in the market due to the SEC's warning on Coinbase's upcoming lending business. But overall, the first possibility is relatively higher.

Judging from the futures premium term structure and skewness structure, investors remain cautious about the near future. The near futures premium is at a low level in the week, while CME and other exchanges even have negative premiums. However, investors' confidence in the medium and long term has not changed significantly, which still maintains a neutral state.

European Regulatory Attitude is Favorable to the Market, and the High Volatility may Continue in Sep

This week, regulatory attitudes from major capital markets have changed significantly, and the European region has shown an unprecedented positive attitude towards the crypto market.

The UK Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) this week mainly expressed their concerns about the excessive risks in the crypto market. The ESMA recognized the innovative achievements of cryptos and distributed book technology, but it also shared the FCA's concerns about the risks that unregulated investment activities may bring, the high volatility risk of the crypto market itself, and the risk that the risks of the crypto market spread to the real economy. At a time when major exchanges are trying to meet compliance requirements and deleverage, the attitude in Europe is actually relatively positive, because the development of the crypto market has been officially recognized.

Against this background, the Swiss Financial Regulatory Authority (FINMA) officially approved the compliance licenses of six crypto exchanges this week, and authorized SIX Digital Exchange AG to serve as the central depository of tokens, and its affiliated company SDX Trading AG to serve as the tokens exchange. This is the first time that Switzerland has issued a license for the infrastructure to promote tokens trading and its comprehensive settlement, combining the regulatory framework in traditional markets to achieve comprehensive supervision of crypto trading, clearing, and custody. Considering Switzerland's position in European and world finance, Switzerland's approach undoubtedly provides a model for the future regulatory form of European countries.

In addition, after El Salvador, Ukraine passed the proposal to legalize cryptos, becoming the second country to formally support the legalization of cryptos and the first European country to pass the proposal to legalize cryptos.

Central banks and regulatory agencies in Sweden, Mexico and other countries regard crypto investment as commodity investment. While clarifying its risk attributes, they formally recognize the status of cryptos as investment products.

Compared with Europe, the regulatory action in Asia is relatively strict. The Securities and Futures Commission of Hong Kong said that it would expand the scope of supervision, strengthen the importance of licenses, and will actively crackdown on unlicensed transactions, and implement regulations on over-the-counter derivatives. In Southeast Asia, the measures have been more severe: Huobi's services in Thailand and Binance's services in Singapore have been suspended for regulatory reasons.

The European Central Bank announced this week that it would slow down its bond purchases, but at the same time said that it had not reduced its bond purchases, but only calibrated the original bond purchase plan and announced that it would keep the original interest rate unchanged. For the crypto market, both Europe and the United States, the possibility of liquidity contraction during the year is decreasing, and long-standing concerns about liquidity tightening have been eased.

However, the high volatility that began on Sep 7 did not show obvious signs of decline. On the one hand, due to the general rise in other tokens' volatility in the market, the overall market volatility has not yet reached a stable stage. On the other hand, the delivery date of derivatives is approaching, and quarterly derivatives delivery tends to bring greater market volatility. It can be predicted that the high volatility of the market will continue in the near future, which is conducive to the volatility strategy, but investors still need to pay more attention to risk control.

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