Alpha Hunt — September 10

What do crypto traders and goldfishes have in common? Both probably share the traits of amnesia.

Just two months ago, market participants proclaimed the dawn of a new bear market, but market participants are now hailing for a new all-time high (ATH). All that optimism has pent up to form an overheated market sentiment — which is a precursor to the liquidation-driven drop in crypto markets this week.

Is the Alt Season Here? 

Catalyzed by the growing NFT scene and the launch of new liquidity mining programs, Layer 1 and 2 tokens have been the star performers month-to-date. For instance, Solana’s SOL and Fantom’s FTM generated most of the gains this month. BTC’s dominance rate is also reaching a yearly low, and altcoins performance could see some resistance as we conclude the current month.

A sizable divergence also emerged between altcoins and BTC/ETH funding rates, with a bullish sentiment concentrated in the altcoins. After this week’s flash crash, funding rates were reset and are more evenly spread across the board. This implies a washout of the over-leveraged long positions — which will ultimately have a healthy impact — if the crypto market continues its bullish notion.

Weighing Options

Options’ implied volatility (IV) has also fallen significantly month-on-month, despite OTM appearing to be elevated. This signifies heightened expectations of outsized market movements in the near future.

Since the flash crash, near-term OTM put-call skew has also remained lifted with market participants tapering their near-term bullish expectations. However, bullish expectations are still on track into the end of the year, evidently by the skew levels reverting to the pre-flash crash levels. 

Noteworthy Catalysts

Looking forward, the decision to approve a BTC exchange-traded fund (ETF) in the United States has been extended one last time to mid-November. This decision would be massively bullish — if approval does occur. Mark your calendars, folks!