A deal has been reached by the White House and Republican leaders to lift the debt ceiling and prevent default. It would allow the US Treasury to return to the debt markets, and the issuance of this debt could be a significant liquidity drain. However, the markets now pricing a 70% chance of no hike in June, and it should counterbalance the anticipated tightening of liquidity. According to The Block’s data, the total trading volume on exchanges was $307.4 billion in May, which was a decrease of 23.2% from April. This marked the lowest level since November 2020. $BTC market was decently still and $ETH was relatively strong and brought ETH/BTC above 0.07.
BTC and ETH continued trading at tight ranges which pushed 7-day RV to the sub-30 zone. Short-term vega sellers stayed active even though IVs are now at historical lows - 3-month IV traded below the 40 handle for both BTC and ETH. The vol term structure looked quite identical for BTC and ETH, meaning marginal IV spread, however, ETH outperformed BTC in the past week. Skew drifted lower to neutrality for BTC and remained slightly in favor of puts for ETH. The correlation between BTC and gold picked up over the past weeks, further confirming the decoupling of equities and crypto.
The major indexes closed the week with solid gains: the DJIA added 0.4%, the NASDAQ added 3%, and the S&P 500 added 1.6%. The debt ceiling agreement seemed to have a limited impact on market sentiment, as enough signals had already emerged. Instead, investors have eyes back to economic data, following the news that job openings rebounded much more than expected in April. The encouraging inflation data also drives for a decrease in Treasury yields, which further favored the sentiment.