Thanksgiving Holiday, High Volatility: Weekly Market Review From Blofin

Thanksgiving Day this week coincides with the monthly delivery of derivatives in November. Under the influence of multiple factors such as epidemic, economic data and supervision, market volatility has risen to its highest level since November and there is no sign of decline.

The sudden epidemic news and the adjustment of market makers' positions after the delivery of derivatives may be some of the factors affecting the sharp drop in the crypto market on Friday.

Next week's unemployment rate, non-agricultural employment and inflation data will be important observation indicators for the Federal Reserve to judge whether it needs to speed up debt reduction and raise interest rates ahead of schedule.

Thanksgiving and Fluctuations

This week coincides with Thanksgiving Day in North America. However, in the spot and derivative markets of cryptos, the game between investors has not been relaxed due to the festive atmosphere.

For most of this week, the judgment on the Fed's expectation of raising interest rates has greatly affected the trend of the crypto market. With the blessing of good employment data performance and consumption data performance, many Fed officials' attitudes turned to tough, hoping to "muster up momentum" on the premise of a better economy and control inflation by speeding up debt reduction and raising interest rates. At the same time, India and other countries have also issued new restrictions on the crypto market, which has kept the performance of cryptos in a "suppressed" state until Thursday.

As the United States enters the Thanksgiving holiday, the European investor community is beginning to gain the upper hand in the market. Compared with Americans, due to the ambiguous attitude of European central banks towards inflation and the high inflation data, worries about inflation still dominate the European market, which makes the price of cryptos temporarily rise again.

However, around Friday's derivatives delivery, the crypto market fell sharply again. On the one hand, the news of the outbreak of the novel coronavirus variant in South Africa has once again caused investors to have doubts about the future economic performance and triggered widespread panic across the market. At the same time, after the delivery of monthly derivatives, a large amount of spot used to hedge risks was released into the market in the position adjustment operation of market makers, further pushing down asset prices.

From the perspective of volatility, affected by the above situation, the volatility of mainstream cryptos rose to the highest level since November this week. While rising volatility is normal given the impact of derivatives deliveries, it is worth noting that the gap between historical and implied volatility is narrowing, particularly on ETH, which is usually a signal that market performance is beginning to move downwards.

From the perspective of futures premium, the market is not optimistic about the performance of BTC and ETH in the near and medium-term. In December, the futures market premium rate was less than 8%. However, compared with BTC, investors are still relatively optimistic about the future performance of ETH, and its forward futures premium rate is still relatively stable. Investors bullish on concepts closely related to ETH such as Metaverse and NFT may be one of the reasons.

“It’s Time to Bet on Dec”

Compared with this week, a series of economic data next week may be more important.

The euro zone's November industrial, consumer and economic sentiment index will be released on Monday, while the November CPI and employment data of European countries will also be released on Monday and Tuesday. These will be important indicators to judge the economic recovery in Europe. Judging from current forecasts, the possibility of high inflation coexisting with a slowdown in the economic recovery has increased, especially under the influence of a new epidemic. This provides some support for the performance of the crypto market, but the performance of the US market will still dominate.

From the perspective of the U.S. market, Wednesday's November ADP employment figures and Friday's unemployment and non-farm employment data will be the focus of the Fed's next phase of action. At present, the forecast data predict that the employment data will continue to improve in November, but due to the rebound of the epidemic, certain variables may occur. At the same time, the possibility that the novel coronavirus variant will trigger the fifth round of epidemics cannot be ignored. Therefore, the expectation of raising interest rates may be lowered, which will reduce the pressure above the crypto market to a certain extent, while the bet on the attitude of the Federal Reserve may keep the market volatility at a high level.

To sum up, December may be a treacherous month for crypto investment. Under the background of high volatility, relevant strategies based on risk control may be a more appropriate choice in the short term, which opens up space for investors to conduct relevant operations in the derivatives market, similar to the high yield period of derivatives at the end of last year.