Risk on or risk off?
The next stage
As expected, risk off tone dominated the price action as market participants reacted to the news of an aggressive spread of a new strain of coronavirus out of the UK, as well as further tensions between the EU and the UK ahead of the Brexit deadline.
As a result, GBP was hit hard across the board at the open, which when combined with EUR weakness that stemmed from uncertain macro impact, led to USD strength. This strength in turn caused market participants to unwind some of the long risk assets positioning and the crowded nature of digital assets resulted in a particularly violent compression.
All in all, this meant that it was not uncommon to see some assets trade with losses of close to 10%.
In the Markets
To the downside we go…
Interestingly, large and small cap indices traded more or less in lockstep to the downside and yet when the recovery ensued in the final hours of trade, it was the small caps that actually outperformed. This is usually a positive sign and indicates a healthy alpha seeking play by market participants.
The problem with crowded trades is that when position unwind takes place and it always does, very few are prepared to ride the subsequent volatility spike. Good thing that crypto natives are well accustomed to such formidable spikes in volatility, which is in part exacerbated by the nature of Bitcoin margined futures contracts.
Expect an unwind of momentum trades be met with plenty of dip buying from retail and the more opportunistic market participants, even if market timing is notoriously challenging.
Crypto AM: Longer Reads
Crypto AM: In conversation with James Bowater
Crypto AM: Market View in association with Ziglu
Crypto AM: Technically Speaking in association with with Zumo
Crypto AM: Talking Legal in association with INX
Crypto AM: Focusing on Regulation
Crypto AM: Inside Blockchain with Troy Norcross
Crypto AM: A Trader’s View with TMG
Crypto AM: Definitively DeFi
Crypto AM: Founders Series
Crypto AM: Industry Voices
Crypto AM shines its Spotlight on CEX.IO