Alpha Hunt — August 19

“The virus escaped and everybody died. Trouble was, they didn’t stay dead.” — Alice, a fictitious character from the Resident Evil movie series.

Much like the zombies in the campy Resident Evil films, crypto refuses to “stay dead” and has come back even stronger! What’s even more surreal? Just like the twist that lurks around the corner of the film, the frenetic bullish pace seen in August is likely to slow down in the near term.

Taking Stock

Total crypto market cap trended downwards this week — respecting traditionally significant Fibonacci levels — stalling at 61.8% of the high and low price point in April-May.

While funding rates have stabilized at their base levels, crypto needs fresh liquidity inflows to continue reaching an all-time high (ATH).

So far, the crypto market looks less encouraging on the surface, as exhibited by Grayscale Investment BTC discounts and exchange traded product (ETP) fund inflows still remain weak.

The last bastion of fund inflows — stablecoin issuances — has also diverged with price action. In particular, “regulation-friendly” stablecoin’s market cap slid down in August — potentially signaling a slowdown in institutional participation.

It’s Everyone’s Favorite Time of Year

EIP 1559’s implementation and the NFT boom have led to some proclaiming the arrival of a new altcoin season. The largest indicator of alt-season: BTC dominance is trending downwards, testing the support zone once again.

This week, we also saw a resurgence in alternative Ethereum Layer 1. First, we had SOL breaking ATHs — which was then followed by the influx of customary venture capitalist’s self-congratulatory tweets (no surprise there).

AVAX also announced the launch of new liquidity mining initiatives, which onboards Aave and Curve. If there’s anything that we can learn from Polygon’s success, “anchoring” blue-chip protocols alongside superior farming yields can rapidly change the fate of an obscure blockchain solution.

Weighing Options

BTC call open interest has increased significantly this week, on the backdrop of heavy interest in OTM strikes. While OTM call skew has maintained at decent levels — there hasn’t been a broad-based rally in implied volatility (IV). In fact, we’ve seen absolute ATM IV levels come down around 10% week-on-week.

Long story short: There’s certainly bullish interest within the options community, but the sentiment isn’t compelling for the larger market.

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