The crypto market is weary after relentless waves of selling pressure on Tuesday. Several assets have now stabilized as they begin to establish support levels, although if the US dollar continues to show strength it could signal a prolonged period of decline.
Bitcoin has risen about 1% since midnight UTC after two days of declines that saw it fall to the lowest price since June at one point. Ether which slipped more than 20% in the 48 hours – the biggest drop in three months – added 2%.
While the CoinDesk 20 Index, a measure of the largest cryptocurrencies, is down 2.5% over 24 hours, that’s a pretty good reflection of yesterday’s action: it’s up 2.2% since midnight UTC and just one constituent, is lower.
The altcoin market is in a worse situation than bitcoin, which continues to hold on to the $99,000 support level.
Several tokens have now retraced their entire rallies from July, suggesting that a short-lived “altcoin season” ended with BTC looking back and its ability to weather this recent storm.
Positioning of derivative products
By Saksham Diwan
- The BTC futures market reflects growing caution. Open interest (OI) fell to $25.3 billion from $26 billion last week, suggesting traders are reducing leverage. Compared to BTC’s higher year-over-year price, the decline indicates that the relative amount of leverage in the market has not kept pace with asset appreciation.
- The three-month annualized basis is suppressed at 3%-4%, signaling that the basis trade is currently unattractive. Funding rates are mixed but low across major venues (4-9% annualized), reinforcing the lack of strong trend commitment and overall market caution on the futures side.
- The Bitcoin options market is showing mixed but volatile signals.
- Implied volatility (IV) is high across all time frames, indicating high expectations for near-term movement. Structurally, the IV term structure shows a short-term backwardation (downward slope) before resuming a long-term contango (upward slope).
- Despite this volatility, the recent trade bias has turned bullish again, with 24-hour put call volume leaning 58% to 42% in favor of calls, indicating an active upside bias.
- The recent price decline has been heavily influenced by leverage unwinds, with $1.7 billion in liquidations over the past 24 hours split between 76% and 24% in favor of long positions. ETH dominated notional losses with $572 million liquidated.
- Importantly, the average volume of long liquidations over the past two days of $1 billion is significantly higher than the seven-day average of $620 million, confirming the amplified impact of forced sales on current price action.
- Looking ahead, a bounce could face immediate resistance, with a key price level at $102,500 with $124 million in potential liquidations.
Symbolic discussion
By Olivier Knight
- The altcoin market remains in oversold territory following Tuesday’s grueling sell-off that saw several tokens fall to their lowest levels in months.
- The average crypto Relative Strength Index (RSI) is 38/100, with tokens including OKB, SKY, and FLR printing numbers as low as 23/100. This suggests that even though the overall crypto market is bearish, a short-term relief rally could be on the cards.
- Any suggestion of a rebound would be invalidated if Bitcoin and ether break below their respective support levels at $99,000 and $3,100.
- If further declines in BTC and ETH were to occur, altcoins would fare worse due to lack of liquidity and asymmetric leverage levels. This means that altcoin order books simply do not contain enough buy orders to absorb the selling pressure and subsequent liquidations, resulting in dramatic spikes to the downside.
- Traders will be wondering if the recent “altcoin season” is officially over with the majority of tokens except privacy coins eroding their July and August rallies.
- The privacy coin narrative remains a key driver of the current market, while DCR and ZEC calmed down on Wednesday, XMR rose 7% and the overall sector remained significantly higher over the past month.
