19 Sep 2022

Crypto market de-risking

Crypto investors are dumping BTC and particularly ETH for stablecoins as macro fears return.
Market update (19).svg
BTC is down 13% in the last seven days after a wide de-risking response to another negative inflation surprise last week as market participants brace for tightening conditions after tomorrow’s FOMC. BTC has fallen in tandem with Nasdaq (-7%) and the S&P 500 (-6%), albeit on a higher beta. ETH has faced an even stronger downward pressure. After the successful merge last Thursday, ETH has plunged 20% and now trades at 0.07 versus BTC, on par with the average price in the last year. Short-term, the merge was a sell-the-news event, but now, market conditions have normalized, and fork effects have settled.Interestingly, BNB has outperformed both ETH and BTC in this challenging environment, seeing losses of 7% as Binance benefits from both enhanced volumes amid soaring volatility and an already established consensus mechanism.
Source: Tradingview (Coinbase, Binance US)
This morning, Wintermute announced a hack amounting to $160m involving their DeFi operations. The hack likely utilized a vulnerability identified by 1inch, explained in detail by Mudit Gupta. In short, the hack may have been run by brute forcing with GPUs. The lost funds include 671 WBTC and 6,900 WETH + approximately $100m worth of stablecoins, and the situation is worth monitoring.
Crypto investors are seeking refuge in stablecoins
September has historically been the weakest month for the crypto market, and there isn’t much optimism to identify this year either. So far in September, all our indexes are either flat or slightly down. The Mid Caps Index is flat, bitcoin is down 2%, the Small Caps Index has declined by 5%, and the Large Caps Index is the worst performer after falling by 6%.The Large Caps Index’s poor performance is mainly caused by ETH, which experienced a sell-off following the merge last week. Its underperformance has resulted in it losing a 1.9 p.p. market share over the past seven days.
Source: Bletchley Indexes, Tradingview (Coinbase)
September started promising for the crypto market, with all indexes up between 8% and 15%. We saw a slight decline a couple of days before the merge as some traders attempted to front run a potential sell-the-news event. It turned out these traders were right, as all indexes have continued plummeting after the merge.Stablecoins are stealing market shares from BTC and particularly ETH. The current highly uncertain market environment has led the sentiment to fall to extreme fear, incentivizing crypto traders to reduce risk by rotating into stablecoins. USDT grew its market share by 0.9 p.p., USDC by 0.52 p.p., and BUSD by 0.3 p.p.Over the past seven days, the total crypto market cap declined by 11%. At the same time, the combined market cap of the three largest stablecoins has stayed put, ultimately leading their market dominance to surge.
Source: CoinMarketCap
Crypto market participants have been fearful for 169 days
The crypto market sentiment has been fearful since early April, as indicated by the Fear and Greed Index. The market has been in the fearful territory for 169 days, the most extended stay since the Fear and Greed Index’s inception in 2018. The market sentiment improved slightly ahead of Ethereum’s merge but has since fallen considerably as the merge turned out to be a sell-the-news event.
The bitcoin spot volume stays at yearly highs
Surging trading activity leading up to the merge led the overall crypto trading volumes to reach elevated levels. The bitcoin spot volume was no exception, as its 7-day average grew to a yearly high of $12.7 billion. With the merge behind us, trading activity has slightly contracted over the past week. Bitcoin’s 7-day average spot volume currently sits at $10.8 billion.
Source: Skew, Tradingview (Binance, Binance US, Bitfinex)
Bitcoin’s volatility retracts to normal after a turbulent period
Bitcoin and the overall crypto markets experienced a volatility burst at the beginning of September. The crypto market has calmed down over the past week, as indicated by bitcoin’s 7-day volatility stabilizing close to its historical average at 3.7%. This volatility stabilization will likely be short-lived, as the FED will hold its monthly FOMC meeting on Wednesday, which has been a catalyst for volatility surges on multiple occasions this year.
Source: Tradingview (Coinbase)
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