It's been a common theme lately: Cryptocurrency trades in a predictable range; small candles slide softly and sweetly through charting software. Embrace the lull, love the predictability.
Suddenly, everything explodes in a flurry of trading as everyone hits sell at the same time.
This happens at the exact moment going for a walk in the park on a nice spring day seems like solid decision making. The markets suddenly decide to rear up – Medusa appears with her venomous volatility snakes.
This is what the crypto markets have been feeling like this past week. However, have solace in knowing one thing – it looks like in these times, volatility is here to stay.
When pondering cryptocurrency volatility in the face of economic uncertainty, it's important to think outside the box. Consider the seminal guitar-riffing musical group AC/DC, plaintively pointing out in one of their hit songs, "it's a long way to the top if you wanna rock and roll".
Some traders like volatility – they live for the gyrations – while others hate it. Question is: Play this game? Or sit out of the market entirely?
To answer these questions, it's time to look at market structure for crypto today and recent measures of volatility.
Market Structure
Exchanges
Spot exchanges in cryptocurrency consist of Coinbase, Bitstamp and LMAX, and other smaller platforms. Those trade in fiat pairs. Other large exchanges such as Binance, Bitfinex and Huobi don't much use traditional banking yet, but play a big role in the spot market.
Derivatives
These exchanges offer cryptocurrency instruments such as swaps, options and futures. Among the largest by volume are BitMEX, Deribit and FTX. They also don't use traditional banking – traders must deposit cryptocurrency as collateral in order to use them.
DeFi
This is a growing component of the ecosystem that facilitates crypto-only lending, trading and derivatives. The largest players include the Maker stablecoin system, Uniswap exchange and the Synthetix asset derivatives exchange.
When crypto assets dump, these various market entities all get hit hard with transactions. Last week, traders struggled to arbitrage and move crypto around quickly. This plugged up the system, and put cryptocurrency volatility on steroids.
Volatility
Bitcoin
Since Jan. 1, 2019
Since Jan. 1, 2020
Ether
Since Jan. 1, 2019
Since Jan. 1, 2020
Assets Compared
BTC vs. ETH vs. XRP
BTC vs. S&P 500
Whether or not traders like the nasty snake of surprisingly volatile markets, they may be here to stay. Volatility in crypto is as high as it's been since the beginning of 2019 when market structure was fairly similar to today.
Back to that structure – it's obvious these various markets, with Bitcoin and Ethereum networks at the core, are not technologically capable of running at the speed of a normal market. At least not yet, and not in the near- or medium-term.
So it's time for traders to have a proper plan for things to go crazy while getting a haircut, practicing Tae Bo or some other activity that takes fingers away from the trading controls.
It's time to ask – are you ready for the some more rock and roll?
Stocks Take a Breather and Crypto Bounces Back
“It's very scary when the Fed cuts rates to zero over the weekend and you see the reaction that the market has had,” said Rupert Douglas, head of institutional sales for digital asset manager Koine.
Experts Say the Fed’s QE Program Will Strengthen Bitcoin
Central banks conducted three rounds of QE between 2009 and 2015, during which time the S&P 500 rallied by more than 200 percent. It also increased bank balance sheets – will 2020's measures be positive for bitcoin?
BlockFi Raises Deposit Rates
The second-largest price drop in bitcoin’s history happened last Thursday. A week ago, BlockFi had interest rates on loans in the mid-single digits. The firm is now charging rates in the ballpark of 10 percent.
MakerDAO Adds USDC as Collateral Following Chaos
At the heart of the USDC addition is a pressing issue: Dai’s dwindling supply. Without a larger supply of dai on the market, the stablecoin went for a premium last week which threatened to capsize the largest DeFi platform.
Record Bitcoin Price Volatility Fails to Unnerve HODLers
Unprecedented implied volatility could be associated with the recent sell-off. Bitcoin topped out at $10,500 in mid-February and fell to 12-month lows below $4,000 last week. That's a solid 63 percent drop in just four weeks.
Retail Investors Are Buying, Bitcoin Institutions Are Selling
According to traders, retail is buying up bitcoin so aggressively that it might be throwing the whole market off. More people buying than selling means trading or leveraging crypto will be tricky for liquidity providers.
LISTEN: The Price Ride
Host Adam B. Levine and John Biggs talk about bitcoin's reaction to the news, the impact of cryptocurrency volumes and coronavirus fears hitting a Paris ethereum conference.
LISTEN: The Fed’s $700B Bazooka Misfires
CoinDesk chief content officer Michael Casey and director of research Noelle Acheson talk about increased conversations in the coming weeks about UBI, MMT and other direct citizen stimulus amid the Fed's actions.
Tweet of the Day
Data provider CoinMetrics tweeted that on March 11 about 281,000 BTC that had been untouched for at least 30 days were revived. But only 4,131 BTC that had been untouched for at least one year were revived. |
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BTC: Price: $5,160 (Bitstamp) | Market Cap: 95 billion (CoinGecko) | 24-Hr Volume: $35 billion (CoinGecko)
Trend: Bitcoin continues to trade in tandem with global equities, which are struggling to chart a sustainable recovery despite the Fed Reserve's recent aggressive easing and talk of U.S. fiscal stimulus. Futures tied to the S&P 500 index are currently reporting a 3.7 percent drop and major European equities are flashing notable losses.
While the risk-off tone in the equity markets indicates the path of least resistance for bitcoin is to the downside, the cryptocurrency's short-term technical charts are signaling seller exhaustion. Of note is the long-tailed hammer candle created Monday – widely considered an early sign of trend reversal.
Additionally, bitcoin's below-zero market value to realized value (MVRV) Z-score suggests the cryptocurrency is underpriced. As a result, a quick move to $6,000 could be seen if global equity markets start to show signs of stability.
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| | | | Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments. |
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