The crypto market was reeling on Monday after a massive sell-off occurred minutes after CME’s bitcoin. futures markets opened. As a result, the CoinDesk 20 Index (CD20) is down 5.98% over the past 24 hours.
The nervousness can be attributed to the low-liquidity trading environment for cryptocurrencies, which has still not recovered from October’s $19 billion liquidation stunt.
Macroeconomic news in Japan also played a role as Bank of Japan Governor Kazuo Ueda made comments hinting at an interest rate increase this month, a suggestion that pushed yields on 30-, 10- and 2-year Japanese government bonds to levels not seen since 2008.
The potential move to raise interest rates would strengthen the yen, which could cause hedge funds that historically borrow the yen to buy risky assets like bitcoin to reposition.
Positioning of derivative products
- The market collapse was accompanied by capital flight from crypto futures, where open interest (OI) on coins like ZEC, SUI, UNI, ENA collapsed by over 10% in 24 hours.
- BTC OI fell 2%, while Ether OI increased slightly to 12.51 million ETH, the highest since November 21. Traders could short-circuit the price decline.
- Sentiment has become significantly bearish across the market as evidenced by annualized funding rates of -7% to -11% for several tokens such as SOL, BBB, XRP, AVAX, and DOT. Negative rates imply a bias toward bearish short positions.
- Volmex’s BVIV, bitcoin’s 30-day implied volatility index, soared during Asian hours, signaling renewed fear as prices fell. The index briefly rose above 55% and has since fallen slightly to 53%.
- On Deribit, sell biases have strengthened in BTC and ETH options in the near and near term.
- Block flows featured BTC chokes and ETH straddles. Both strategies are used by traders when they anticipate a volatility boom.
Symbolic discussion
- The altcoin market was not immune to the broader crypto market crisis on Monday; zcash lost 20% of its value in 24 hours while And fell by 16% and 14% respectively.
- Of the $637 million in liquidations over the past 24 hours, more than $430 million was generated in the altcoin market, with several tokens forming lower highs to extend downtrends dating back to early October.
- The market is now approaching a perilous position because if the November lows were removed it would confirm a bearish reversal from the October highs.
- However, the average Relative Strength Index (RSI) indicator is currently showing “oversold” conditions, meaning the market is likely to see a relief rally at some point as those in short positions take profits.
- A handful of tokens are still positive over the past seven days. These include layer 1 blockchain token KAS, up 29%, and SKY, the DeFi token formerly known as MKR, which rose 17% last week after announcing a series of buybacks.
- The “altcoin season” indicator remains stuck at 24/100, down dramatically from September’s highs of 78/100, suggesting investors still favor the more liquid and stable bitcoin.
