When the financial markets go risk-on, crypto surges

01 Aug 2022

When the financial markets go risk-on, crypto surges

Bitcoin is up 9% over the past seven days as the financial markets see renewed risk appetite. On Saturday, bitcoin briefly hit its highest level since the beginning of June at ~$24,500 but has since stabilized at $23k.

The crypto market sentiment is improving, and market participants are more comfortable getting altcoin exposure. As usual during such shifts towards increased risk, ETH and BNB outperformed BTC with 12% and 16% gains over the past seven days.The recent crypto market rally is mainly driven by increased macro-optimism. Last week’s FOMC meeting ended with the Fed hiking its funds rate by 75bps. The stock market rallied following the meeting as the market perceived the Fed as increasingly likely to start cutting rates earlier than initially expected. Over the past seven days, the S&P 500 climbed 5% and Nasdaq by 6%. Bitcoin’s 9% increase is then expected, given its high correlation with the stock market.The increased risk appetite in the crypto market is also evident in last week’s surge of smaller coins like Filecoin (+54%), Ethereum Classic (+45%), and Internet Computer (+24%).

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Source: Tradingview (Coinbase, Binance US)

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Source: CoinGecko, messari.io

Altcoins dominating in July

After several months of tumbling prices, July gave us a classic relief rally in the crypto market. Altcoins dominated, and the Mid Cap Index was the clear winner of July, with a gain of 40%.Most altcoins had a great month, with the Small Caps Index ending up 30% and the Large Cap Index closing July with a 26% gain.Bitcoin ended July with a 17% gain. Outpaced by most altcoins, but still the best month for bitcoin since October last year.

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Source: Bletchley Indexes, Tradingview (Coinbase)

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Source: Bletchley Indexes, Tradingview (Coinbase)

Ether’s lack of strength relative to bitcoin last week has been reversed this week, as ether has increased its market share by 0.43 percentage points, while bitcoin has lost 0.22 percentage points. This could be due to the merge approaching, which will transition Ethereum to proof-of-stake.Notably, bitcoin and stablecoins are losing market shares this week, which shows that traders are taking on more risk again.

Least pessimistic market sentiment since April

The Fear and Greed Index sits at 31 after briefly hitting a top of 42 on Saturday, which marks the highest market sentiment peak since April. Looking at the chart, we see that the market sentiment has improved slowly during the last two weeks, signaling that market participants are still cautious. This slow market sentiment growth is in stark contrast to how the market sentiment rapidly exploded from the ‘extreme fear’ level to ‘extreme greed’ during the bull market of late 2021. Market participants are increasingly less bearish, but exercise caution after a traumatic start to the summer.

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Source: Alternative.me

The elevated activity in the bitcoin spot market continues

The bitcoin spot volume continues to stay close to its one-year highs. The elevated trading activity is primarily driven by Binance, which remains the arena for 70% - 80% of the bitcoin spot trading. Binance has seen a surge in its trading volumes since it introduced zero fees for several BTC pairs three weeks ago. While parts of its volume increase are undoubtedly caused by wash trading, a significant share of the rise might be organic activity from traders attracted to the platform due to the fee removal.

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Source: Skew, Tradingview (Binance, Binance US, Bitfinex)

Bitcoin’s volatility at historical average

Bitcoin’s 7-day volatility is climbing, driven by the 8% price spike last Wednesday when bitcoin challenged the resistance level at $24,500. Bitcoin didn’t break through but stabilized just below and has since been sitting between $23k and $24k. The 7-day and 30-day volatility are sitting at 3.3%, which is close to the average level of the last year.

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Source: Tradingview (Coinbase)