13 Jun 2022

A week full of nasty surprises fuels wide collapse

A higher than expected U.S. CPI caused an abrupt stop to the flat market, leading BTC to plunge alongside U.S. equities, exposing new contagion-related vulnerabilities in the market.
Market update (9).svg
Bitcoin reached lows of $20,800 and has since seen a slight recovery. Nevertheless, BTC is very near its 2017 cycle peak of $19,900. Bitcoin has never before traded below previous market cycle peaks. Such an event could pose a structural shift in bitcoin with complex implications on the market and investor sentiment related to bitcoin.While bitcoin has faced strong headwinds in the last week, Ether has weathered an even heavier storm, seeing a 31% loss over the last seven days, leading ETH to trade below its 2018 peak. The ETH sell-off is exacerbated by the potential insolvency of Celsius.
Source: Tradingview (Coinbase, Binance US)
While the crisis in Celsius has contributed to further drag on the market, the initial catalyst was the inflation surprise in the U.S. We note a decline in the 90-day correlation between BTC and S&P 500. However, short-term correlations grew heavily following Friday’s inflation news – with the market preparing for more hawkish policies enacted by the FED.
The crash has hit the entire market hard
As usual during market turmoil, we see increased correlations between the different cryptocurrencies. Bitcoin has decreased 29% in June, while the Large, Mid and Small Cap indexes are down between 32% and 33%.
Source: Bletchley Indexes
Due to the market-wide collapse, the total crypto market cap sits below $1 trillion for the first time since January 2021. At the peak in November, this number was almost $3 trillion, meaning that $2 trillion of crypto wealth has evaporated.Interestingly, bitcoin has not grown its market share during the turmoil. One of the reasons might be that stablecoins continue to eat up a larger share of the crypto market. USDT increased its market share by 1.6 percentage points and USDC by 1.3 percentage points.
Source: CoinMarketCap
The crypto market hasn’t been more fearful since March 2020
The Fear and Greed Index is currently at 8 and hasn’t been lower since March 2020. Today marks the crypto market’s 56th day in the extremely fearful territory, which is the longest in the index’s history. Market participants are undoubtedly tired of the fearfulness, and many are capitulating. Historically, buying has been a profitable strategy in such fearful times. Still, it’s not easy to catch a falling knife.
Activity surging in the bitcoin spot market
On Monday, $15.7 billion worth of bitcoin changed hands in the spot market, the highest daily spot volume since December 2021. As the Fear and Greed Index signaled ‘extreme fear’ for 56 straight days, the market turmoil on Monday was the drop leading many tired market participants to flood the spot market with bitcoin sell orders.
Source: Skew, Tradingview (Binance, Binance US, Bitfinex)
Bitcoin’s biggest daily price drop since March 2020
The bitcoin price dropped 15% on Monday – the biggest daily price drop since the covid crash on March 12th, 2020. Volatility has been low lately, and this massive decline should be a reminder of bitcoin’s inherent volatility. After this movement, the 7-day volatility is 5.1%, higher than average.
Source: Tradingview (Coinbase)
Share this article