Market Update – 21 Feb 24

BTC made new highs, touching 53,000 yesterday and ETH played catch up, climbing to a 3,033 high.

Funding rates in the Alts have been particularly elevated on this leg higher, paying up to 40% ann. in perpetual swaps. BTC and ETH forward curves were very elevated as well, yielding up to 17% at some points of the curve.

Anecdotally, this kind of speculative rotation to Alts is a mid-cycle phenomenon. Funding at these levels is typically difficult to sustain which means there could be a pullback in price after such a strong move higher. We have already started to see some selling pressure earlier in Asia afternoon (BTC 50,630 low, ETH 2,880 low).

A key event today that could trigger a wider correction is Nvidia earnings which will be released after the US close. As a major part of the SP500 Index, Nvidia’s performance could set the tone for US equities in the near-term.

NVDA is currently trading at 90x P/E and Q4 earnings expectations have been adjusted higher recently. At these valuation multiples and high expectations on earnings, any disappointment could see a sell-off. That would certainly put a drag on US equities and crypto prices as well.

We have seen a tremendous amount of interest to sell the spot-forward spreads at these elevated levels. The amount of basis selling along with the heavy spot price today has dragged forward levels closer to 11-12% ann.

Even at these lower levels, the trade is still a risk-free 12%. Selling the end- Apr forward is particularly attractive given the high chance the forward points will collapse quickly post-halving.