Analyzing crypto’s crash in contrast to key indicators
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This week we return with comprehensive insights on the recent downturn for crypto markets. We discuss investors’ high emphasis on macro factors, as well as how the market’s microstructure in order books and derivatives exchanges point to panic selling and bearish exhaustion.
We contrast this with on-chain metrics, which show buyers remaining patient and keeping their conviction regardless of the recent drop.
Weekly Fees — Sum of total fees spent to use a particular blockchain in a week. This tracks the willingness to spend and demand to use Bitcoin or Ether.
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges over the past seven days. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation.
We had previously discussed the growing influence of macro conditions in crypto markets, and how it was leading investors to doubt Bitcoin’s potential to act as an inflation hedge.
While inflation in the U.S. has remained high and the fed stated plans to accelerate an interest rate hike, Bitcoin has crashed in tandem with growth stocks.
High correlations amid fears — Risk-on assets such as the growth stocks in Ark’s Innovation ETF (ARKK) and in Renaissance’s ETF tracking recent IPOs (IPO) have mirrored Bitcoin’s price action.
Panic selling — Looking closer into order books, sellers’ high urgency is evident.
Trades per Side — Each trade has a maker setting limit orders and a taker with market orders. The Trades per Side indicator aggregates the volume of taker orders on both the buy-side and sell-side, showing the difference below.
Perpetual swaps turn excessively bearish — Following the strong decline of crypto in the first week of the year, derivatives traders bet against Bitcoin.
Potential short squeeze ahead — The ratio of Bitcoin’s open interest relative to its market cap has reached the highest level in over a year, suggesting that an excessive amount of traders betting in the current price trend continuing
Zooming out, key on-chain indicators point to buyers remaining strong. As Three Arrow’s Capital CEO Su Zhu tweeted “Buyers are patient, sellers in panic”. This is evidenced by the growing volume held by addresses with over 1,000 Bitcoin.
Whales Accumulate — As Bitcoin dropped below $50,000 addresses with over 1,000 BTC proceeded to increase their holdings.
Hodling Strong — Regardless of the volatility, long-term holders continue showing their conviction.
Holders are not the only ones showing conviction, as miners also set new highs.
Hash Rate All-Time High — Bitcoin kicked off 2022 with a new record high for its hash rate
Overall, this highlights the contrast between short-term panic and long-term conviction in Bitcoin. Finally, while everyone seems to be a macroeconomic expert now closely following quantitative tightening, it is worth noting how the fed increased interest rates three times in 2017 and that did not stop crypto (nor equities) from reaching new highs.
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Derivatives markets in crypto continue to grow in popularity, outpacing trading volumes in spot exchanges. This has created opportunities for traders and investors alike along with a new set of tools to assess the state of crypto markets.
In this webinar we will dive into the numbers behind derivatives markets in crypto both in centralized and decentralized venues. Similarly, we will uncover opportunities in each of these markets that can benefit traders and builders alike.
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