Crypto markets demonstrated their fragility on Friday, with bitcoin trading just above a psychological support level at $70,000.
The largest cryptocurrency surpassed that level on Wednesday, hitting $74,000 before failing to capitalize on a lower liquidity zone above and falling back alongside U.S. stocks.
The escalation of war in the Middle East has pushed oil to a new cyclical high of $85 per barrel. Brent crude is up about 42% year to date. Soaring energy costs, alongside growing uncertainty around Iran, have prompted traders to reassess the inflation outlook in Europe, with money markets now even pricing in the possibility of a European Central Bank rate hike by the end of the year – a sharp reversal from expectations of rate cuts in 2025.
Higher interest rates would generally weigh on bitcoin and the broader crypto market, as investors turn to safer assets offering attractive returns without the volatility associated with risky assets.
The altcoin market has also shown signs of weakness over the past week, according to Santiment’s social volume tracking system, which indicates that social media sentiment towards the speculative market is near an all-time low.
Positioning of derivative products
- The market is consolidating as bitcoin’s open interest (OI) rises to $16.16 billion from $15 billion last week, indicating a return of speculative interest.
- While retail funding remains stable in the 0-10% range, Binance has moved to -2.5%, signaling a localized increase in short covering.
- On a quarterly basis, the rate remains at 2.7%, a sign that institutional conviction remains low.
- The options market has moved toward cautious optimism. The 24-hour call volume split tightened to 51/49 and the 25-week delta skew cooled to 8% (from 15%), significantly reducing the cost of downside protection.
- While longer-term implied volatility (IV) remains stable at nearly 50%, the short term has turned into a strong backwardation, a sign that traders are pricing in an immediate, high-impact volatility event ahead of a return to medium-term growth.
- Data from Coinglass shows $257 million in liquidations over 24 hours, with a 70-30 split between long and short positions. BTC ($121 million), ETH ($51 million) and others ($15 million) were the leaders in terms of notional liquidations.
- The Binance liquidation heatmap shows $71,600 as the base liquidation level to watch, in case of a price rally.
Symbolic discussion
- Decentralized finance (DeFi) tokens MORPHO and JUP led Friday’s sell-off, losing between 2% and 3% since midnight UTC as traders dumped speculative tokens and toward the dollar.
- OKX’s native OKB token was the biggest gainer over the past 24 hours, rising 23% after trading giant Intercontinental Exchange (ICE) signed a deal with the exchange to introduce tokenized stocks and crypto futures products.
- Substantial gains were also seen for KITE and RIVER, each increasing by around 15% over the past 24 hours, continuing their impressive start to the year.
- Privacy tokens continued to lose ground, with zcash (ZEC) and decred (DCR) falling 6% in the last 24 hours and the slowdown has accelerated since midnight UTC.
