11 Oct 2022

Calm before the storm?

Volatility is declining in the market as BTC still holds firm within its lengthy consolidation range, seeing losses of 3% in yet another frantic week in global markets.
Market update (3).svg
ETH and BTC have moved in close tandem over the last week, as ETH also see losses of 3% in the last seven days. Under the hood, a concerning trend is apparent in both coins as leverage continues to soar to higher levels. Down the line, this may generate a substantial squeeze in the market, and the situation should be monitored cautiously.
Source: Tradingview (Coinbase, Binance US)
A potential volatility catalyst is approaching this week as U.S. September CPI numbers will be released on Thursday, forecasted to a 0.2% MoM CPI growth and a 0.5% MoM core CPI growth. A miss from this forecast is likely to lead to volatile markets, in particular in the prolonged strongly correlated environment between BTC and U.S. equities.
Source: CoinMetrics
After a lengthy period of strength, BNB (-5%) underperforms ETH and BTC this week following an exploit of a vulnerability in the bridge between the BNB Beacon Chain and the BNB Smart Chain.
Slow start to October
It’s been a slow start to October with no clear direction. Bitcoin is slightly outperforming relatively to the other indexes, and stablecoins are once again gaining market share.
Source: Bletchley Indexes, Tradingview (Coinbase)
After a few days with positive returns, the crypto market started declining last week. All indexes are now marginally in the red after a flat start to October.Bitcoin is the best performer so far in October, but still down 1.5%. The leading cryptocurrency is closely followed by the other indexes, with the Mid Cap Index being down 2.1%, the Large Cap Index down 2.4%, and the Small Cap Index decreasing by almost 5%.Bitcoin is still following the stock market closely in October, as observed in September. Nasdaq is currently down ~1% so far this month. We see the usual increase in market shares for stablecoins as the crypto market sees negative returns.
Source: CoinMarketCap
Notably, XRP is gaining market share this week and keeps its positive momentum from September. We expect XRP’s current outperformance to diminish as soon as the legal battle with the SEC settles, as we believe the expectation of a favorable ruling has been the key driver of the XRP price lately. Buy the rumor, sell the news?
Unchanged sentiment in the crypto market
Not much change in the crypto market sentiment this week. We’re still comfortable in the Extreme Fear area, and the Fear and Greed Index is now at 24. One can argue that the sentiment has stabilized in the upper section of “Extreme Fear”, indicating that market participants are getting used to the low crypto prices we’ve seen lately. We’re at the same levels as seen after the lending contagion flush-out, but the sentiment has improved. However, the trend is still evident; market participants are cautious and not very optimistic at the moment.
Sharp decline in the bitcoin volume
After several weeks of impressive trading activity in the bitcoin spot market, we see a sharp decline this week. The 7-day average bitcoin spot volume is now at $7.9 billion, down almost 40% from the September peak. In the current flat crypto market, it’s not surprising to see the trading activity decline as market participants await a clear direction.
Source: Tradingview *Includes Bitwise 10 exchanges and FTX
30-day volatility approaching yearly lows
The low 30-day volatility of 2.7% is a good summary of the state of the market. Without a deviation in August, we’ve had a fairly directionless bitcoin price since mid-June, mostly ranging around the psychological $20,000 level. The volatility is now approaching yearly lows, and all eyes are on the CPI update on Thursday, which can ignite global markets again. Leverage is still building up in the futures market, we believe that volatility is just around the corner.
Source: Tradingview (Coinbase)
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