The first quarter of 2021 has been an impressive period for Bitcoin (BTC) and ether ( ETH). BTC ended the quarter 68% up, while ETH rose by a whopping 49%. This outburst of growth also found its reflection in the options market which was driven by a lot of call spread buying done to capitalize on the bullish sentiment. As a result of this, implied volatility dropped by 4% for BTC and 3% for ETH. Despite the relaxed volatility, many investors are hesitant about the future, given the fragility of the banking sector which could hinder lending conditions and increase the sell-side pressure of the US Federal Reserve. Stock market benchmarks such as Dow, S&P 500 and Nasdaq also finished the week with an accumulated increase of around 3.4%.

This positive performance in the crypto world has lead to a surge of interest from institutional investors who are looking to expand their crypto portfolios. Data from CryptoCompare has shown that daily volumes increased by 57% in March, amounting to $380 million, for digital asset investment products available to institutional and accredited investors. However, even thought volumes have been increasing, it is important to note that more BTC was extracted from centralized exchanges than BTC that came in. This would indicate that traders have taken most of their profits out at the end of a profitable quarter.

It is clear that any gains made in the market are coupled with the risk of a rate hike caused by the US Federal Reserve. Miguel Morel of Arkham Intelligence commented that “the further along the risk curve an asset is, the more the price tends to correct and the faster it corrects.” BlackRock has also predicted more rate hikes which could translate into a turbulent time in the markets.

Overall, it has been an exciting quarter for BTC and ETH, with options activity shooting up, record influx of institutional and accredited investors, and a decrease in volatility. However, the situation in the banking sector and the rate hike threat from the Federal Reserve both imply that the markets can be unpredictable in the future and traders should use caution when entering into positions.



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