Institutional Insights: Goldman Sachs 'Crypto Pullback Continues'
Bitcoin briefly traded below $100,000 this week, a level not seen since June. Ethereum has wiped out all year-to-date gains. This analysis is exclusively for Goldman Sachs clients.
The typically positive October seasonality failed to materialise this year, with BTC, ETH, and SOL ending the month down -3.9%, -7.0%, and -10.2%, respectively. The selloff extended into early November, with BTC dropping from $110,000 on Monday to below $99,000 by Wednesday morning in Asia. Similarly, Ethereum declined sharply, falling from $3,900 to $3,100 (-20%), effectively erasing all gains accumulated this year (Figure 1).
These moves have been significant: Bitcoin and Ethereum have experienced drawdowns of approximately 21% and 38% from their all-time highs set earlier this year (Figure 1). Both assets have since stabilised, with Bitcoin hovering around $103,000 and Ethereum around $3,400.
The cryptocurrency market has recently diverged from its longstanding positive correlation with US equity markets, a shift observed following the US-China trade escalations on October 10. While the SPX and NDX indices rebounded strongly to reach new all-time highs by the end of October (Bloomberg), Bitcoin and the broader cryptocurrency market have struggled to recover after significant deleveraging and a correction phase. Over the past week, Bitcoin's longer-term correlations with traditional asset classes have re-emerged (Figure 2). The recent weakness in the cryptocurrency market has mirrored broader equity market trends, with both the NDX and SPX retreating approximately 2% from their record highs amid rising concerns over private corporate credit.
Implied volatility for both Bitcoin and Ethereum has risen significantly since mid-October, reaching approximately 47 and 70 levels respectively, and has remained steady at these elevated levels. Realised volatility also remains high, as both assets continue to experience substantial intra-day trading ranges. Additionally, the cost of downside protection remains elevated, with 3-month 25-delta risk reversals for puts becoming more negative in both Bitcoin and Ethereum. Notably, Bitcoin's risk reversals for puts have reached their highest levels year-to-date.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!