Knives sharpenedCrypto is facing downside as tensions are growing between FTX and Binance, leading to a growing fear in the market. As we await two potentially market-moving events, crypto markets are rigged to be shaken up by external forces this week. U.S. mid-terms may trigger volatility, whereas the Thursday CPI release will likely shake up markets in a highly correlated manner.Don’t be shaken out by headlines – crypto markets are still in a lullCrypto is predominantly flat. This is not trivial. While stress is fuming amidst a hectic battle between two exchange behemoths, BTC sits firm within its trading range. Volatility stays low, and derivatives remain idle. Escalating tensions between Binance and FTX or surprising CPI numbers may awaken the market. However, with the exceptions of FTT and various altcoins, the crypto market remains well within its extended trading range.Binance vs. FTX: Clash of the TitansFriction between the two most influential crypto exchanges has escalated throughout 2022. It has reached hostile levels in the last couple of days following the release of a Coindesk article related to Alameda Research’s (FTX subsidiary) assets and liabilities. We elaborate on the necessary details on page 6. The key takeaway from the entire ordeal is that FTX is facing an ongoing bank run caused by Binance and its CEO, Changpeng Zhao (CZ), actively selling FTT and racing concerns related to the financial health of FTX.FTT has fallen from $26 to lows of $15 over the last seven days, experiencing an initial push south following a Coindesk article. FTT has since experienced massive news-driven volatility. Speculative interest in FTT has exploded amid the drama. Open interest relative to market cap sits at 7.65% compared to 2.8% last week. The growing open interest has been accompanied by massively negative funding rates at Binance and Bybit, suggesting a substantial demand for shorting FTT. This could be a potent environment for a squeeze.We view the risks of FTX insolvency as minimal and comparisons between FTT and the LUNA/UST mechanism as fundamentally wrong, as the structure of FTT, is utterly different from the demand dependency of LUNA/UST. However, we view it as likely that this event might have a long-term reputational impact on FTX and possibly generate hedging-related selling pressure in BTC.Correlations and important macro eventsBitcoin’s correlation to U.S. equities, gold, and the U.S. dollar is visibly higher during U.S. market hours than during non-U.S. market hours. The chart and data in figure 2 clearly suggest that BTC sees more independent price patterns outside U.S. market hours, with correlations generally tending to be 0.20-0.30 higher during U.S. market hours.The tightly correlated environment will likely remain this week as we’re in for a huge macro week with a new CPI release and U.S. mid-terms. Last month’s CPI release led markets to extreme correlations. Interestingly, as we note on page 7, correlations tend to be lower than the norm before important macro events but then surge amid the event. Traders should also brace for a similarly correlated environment this Thursday.