Carnage in crypto - CZ pulls out the moves

While we wait for news on the US midterms and tomorrow's US CPI print, many have been closely following and trading the incredible saga unfolding in the crypto exchanges, and coins, with Binance making its non-binding bid for FTX – clearly there are views that CZ (CEO of Binance) walks away from this and some are rightly or wrongly running the ruler over the other exchanges from a liquidity and solvency perspective – and as we’ve seen, not only can one player take down another in a rapid space of time, but the saviours of the industry are themselves and this leads to increased monopolistic qualities and a headfirst battle with regulation – a fate many feel this saga only accelerates.

There will be much ink spilt on this takeover and what it means for the crypto scene, but it accelerated after CZ announced he was to offload his $2B FTT tokens, causing FTT to drop 87% at one stage – this, in turn, impacted the perceived solvency of Alameda Research (FTX’s founder Sam Bankman-Fried) hedge fund, who hold a fair chunk of their sizeable asset pool in FTT.

This fed full circle into solvency concerns in FTX, prompting a massive run from customers and in steps the white knights, Binance – well potentially, as the conditions of the deal are not well known, and it feels like this story has more turns in it.

SOL is the obvious short given its close association with FTX and while we’ve seen more attention from CFD crypto traders in ETH and BTC, the set-up in SOL looks truly dark, where price has smashed through the low of the $26.60 to $47.20 range it held since June.  Bitcoin has had a lower percentage move – as you’d expect here given the relatively better liquidity, but with price trading to $17,825 we’re flirting to break the range lows of $17,800. Clients are skewed long here and eyeing a short-term bounce off the range lows – a factor we typically see after a solid liquidation move, although $850m liquidated (403k crypto holders on exchange) through the exchanges is obviously punchy but isn’t a historically significant number.

Bitcoin Daily

After recently breaking out above $1600, ETH has been smacked back into its former $1400 to $1200 trading range – again a massive skew to be long from clients, with 84% of open positions held for upside – it’s always good to consider that this flow is an aggregation of different strategies, timeframes and belief systems, so it could be scalping exposures, some more on the swing side – either way there is a strong view that price bounces here.

My view, as always, in this dynamic when volatility and range expansion kicks up is position sizing will keep you in the game – know where your risk is and don’t stay wrong for long.

Interestingly, we did see equities find sellers on the crypto drawdown, perhaps a reflection of margin calls across the broad market – gold conversely finds a solid bid and held it despite US real rates moving higher. I see little evidence of traders switching from crypto to gold, but the set-up in XAUUSD looks as bullish as I’ve seen for a while, and a break of $1729 would be wholly bullish and suggest $1800 is a real risk – clearly, those positioned for upside would like a weak CPI print this week – a counter to the hedge against inflation – I think golds best days are when bond yields fall and traders de-hedge equity risk by selling USDs.