First Mover Americas: Ether-Bitcoin Volatility Spread Slides, Bitfinex Shorts Surge

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By Omkar Godbole

Major cryptocurrencies traded in familiar price ranges while traditional risk assets picked up a bid early Friday after Russian President Vladimir Putin reportedly said there were some "positive shifts" in talks between Russia and Ukraine.

While bitcoin bounced 1.3% to nearly $40,000, it remained locked in a six-week triangle pattern identified by Jan. 24 and Feb. 24 lows and Feb. 10 and March 2 highs. Ether, the second-largest cryptocurrency, also traded similarly.

The spread between the six-month ether and bitcoin implied volatilities fell to a two-year low of 13%, perhaps indicating that the cryptocurrencies' fortunes are more strongly tied to each other than before. Implied volatility refers to investors' expectations for price turbulence over a specific period.

Perhaps, the common force driving the two could be the next week's Federal Reserve meeting. The central bank is expected to lift borrowing costs by 25 basis points and offer more clues on when and how it plans to shrink its balance sheet.

The long-short ratio on Bitfinex, one of the top 10 crypto exchanges by trading volumes, tanked nearly 70% to the lowest since July 2021, as the number of bearish bets surged.

Some investors took it as a warning of an impending drop, while others anticipated a potential short squeeze that would send bitcoin higher.

By Omkar Godbole

The U.S. Treasury yield curve has collapsed, with the spread between yields on 10-year and two-year notes sliding to a two-year low and just 26 basis points short of inversion – a recession signal.

A curve inversion is when short-term borrowing costs rise above long-term borrowing costs.

In a note published Thursday, Goldman Sachs warned of a U.S. recession next year, putting the probability at 35%, according to Bloomberg. Further, the investment bank downgraded their growth forecast for 2022, citing soaring oil prices and economic fallout from the ongoing Russia-Ukraine war.

Recession fears may bode well for assets with a safe-haven appeal. While bitcoin's link with the real economic activity is still relatively weak, the cryptocurrency tends to move or less in tandem with risk assets, mainly high-beta stocks, as discussed in Tuesday's First Mover edition.