Week in Review: Crypto Market Volatility Sparks Mixed Reactions

London: 12 August 2024 (TraderMade): The cryptocurrency market is experiencing a tumultuous week, marked by significant volatility and a mixed performance across various digital assets.

The market saw a staggering $500 billion wipeout over just three days, with Bitcoin briefly dipping below the critical $50,000 mark. This downturn sent shockwaves throughout the market, triggering one of the most volatile periods in recent history.

Meanwhile, Ethereum and other major cryptos showed varied strength against Bitcoin and the US Dollar, reflecting a complex market landscape.

Key Takeaways

• Bitcoin briefly dips below $50K amidst a $500 billion market wipeout.
• Ethereum shows strength against Bitcoin, while Solana faces sharp losses.

Cryptocurrency Strength Meter

As of August 12, 2024, at 19:28 GMT+5:30, the strength of major cryptocurrencies, such as Ethereum (ETH), Bitcoin (BTC), and the US Dollar (USD), showcased a nuanced picture:

• Ethereum (ETH): ETH displayed moderate strength, gaining 5% against Bitcoin (ETH/BTC). This gain reflects growing confidence in Ethereum, likely driven by its ongoing developments in decentralized finance (DeFi) and the NFT markets.
• Bitcoin (BTC): While BTC remains the dominant cryptocurrency, its strength was less pronounced this week, potentially due to market caution amid broader economic uncertainties. However, whales have been accumulating Bitcoin heavily, with $23 billion in inflows to permanent holder addresses over the past month.
• US Dollar (USD): The USD remained strong in the crypto market, continuing to be a major trading pair. Despite this, certain cryptocurrencies like CRV showed substantial gains against the USD, indicating divergent strength across different digital assets.

Top Gainers

This week saw several crypto pairs emerge as top performers, defying the broader market downturn:

• CRV/BTC (+19.05%): Curve DAO Token (CRV) against Bitcoin was the standout performer, reflecting strong buying interest and renewed enthusiasm for DeFi protocols.
• CRV/USD (+12.17%): CRV also performed well against the USD, further highlighting its strength during a challenging market week.
• ETH/BTC (+5.00%): Ethereum’s gain against Bitcoin underscores its relative strength, driven by institutional interest and anticipation of upcoming network upgrades.
• DOGE/BTC (+2.91%): Dogecoin managed a modest gain against Bitcoin, indicating a slight uptick in speculative trading.
• MATIC/BTC (+2.86%): Polygon (MATIC) saw gains against Bitcoin, likely due to its expanding ecosystem and role in Layer 2 scaling solutions.

Top Losers

On the flip side, some cryptocurrencies faced significant losses this week:

• SOL/USD (-6.31%): Solana was the biggest loser against the USD, reflecting a sharp correction after its recent bullish run. This could be due to profit-taking or concerns over the network's scalability issues.
• NMR/USD (-6.11%): Numeraire (NMR) experienced a notable drop, possibly due to reduced interest amidst a broader market pullback.
• ICP/USD (-5.33%): Internet Computer (ICP) continued its downward trend, struggling to maintain investor confidence.
• BCH/USD (-5.19%): Bitcoin Cash (BCH) saw a significant decline, likely due to diminishing transaction volumes and use cases.
• ANKR/USD (-4.90%): Ankr experienced a pullback, suggesting a consolidation phase after previous gains.

Cryptocurrency Volatility Meter

Volatility was a key theme in the market this week, with some cryptocurrencies experiencing substantial price fluctuations:

Most Volatile Pairs

• CRV/USD (22.66%) and CRV/BTC (21.95%) were the most volatile, highlighting the high-risk, high-reward nature of trading Curve DAO Token.
• ANKR/USD (18.02%), GRT/USD (13.10%), and SOL/USD (11.90%) also showed considerable volatility, reflecting heightened market activity.

Least Volatile Pairs

• ETC/BTC (2.88%) and ALGO/BTC (3.06%) were among the least volatile, suggesting a more stable trading environment for these pairs.
• LINK/ETH (3.65%), ADA/BTC (3.94%), and LTC/BTC (4.51%) also exhibited low volatility, making them potentially safer options during market turbulence.

Technicals & Macro: BTCUSD and ETHUSD Analysis

BTCUSD

Last week, I expressed my bullish stance on Bitcoin, particularly following the political developments at the Nashville Bitcoin conference, where key Republicans and Democrats voiced support. The market responded, with Bitcoin bouncing back into its range shortly after. However, the current downturn saw Bitcoin testing the $58,000 support level.

Japanese equities were hit hard by the unwinding of the JPY carry trade, raising concerns about unhedged short JPY exposure. Despite this, the carry trade remains attractive due to Japan’s record-low interest rates.

From a crypto perspective, the key question is whether these levels present a reasonable entry point. Our view is that Bitcoin, followed by Ethereum and Solana, offers the most promising opportunities, given growing institutional adoption through ETFs and favorable political momentum.

Key Levels:

• Support: $50,000 / $54,000
• Resistance: $72,000 / $73,794 (All-Time High)

ETHUSD

Ethereum found support at the $2,100 level and made a strong move back up to key resistance at $2,800. While typically, this would be a good opportunity for a beta trade, Bitcoin’s potential to benefit from U.S. election dynamics—such as the introduction of a Strategic Reserve bill—means we remain short-biased on ETHBTC. However, the launch of a staking ETF could change the dynamics, offering a new income hedge.

Key Levels:

• Support: $2,100
• Resistance: $2,800 / $3,600 / $4,000

Spot Desk Insights

The Spot Desk saw significant demand for major cryptocurrencies during last week’s dip, with Bitcoin hitting a low of $49,000. Off-ramping activity remained robust, particularly with the AUD trading around the 0.65 level. The strong bounce later in the week suggests that some profit-taking may occur, especially among short-term players and institutions.

The desk also saw trading in L3, a newly launched altcoin, indicating continued appetite for new launches despite the broader market weakness. Looking ahead, this week’s Consumer Price Index (CPI) release will be crucial in determining the direction of inflation policy, with the September Federal Open Market Committee (FOMC) meeting looking like a close 50/50 call.

Derivatives Desk Update: Wholesale Investors Only

Bitcoin’s 3-month annualized futures basis remained steady last week, averaging around 8%, while Ethereum’s basis has been in a gradual decline, stabilizing at 6.65%. This trend supports our short ETHBTC bias, as we anticipate further expansion in the Bitcoin curve compared to Ethereum’s.

A potential strategy for traders could involve going long on Bitcoin futures while shorting Ethereum futures over a 3-month horizon. For those interested, the Derivatives Desk can package this trade into a structured product.

What to Watch

This week, keep an eye on the UK unemployment claims and the U.S. Producer Price Index (PPI) report on Tuesday, followed by the UK and U.S. CPI reports on Wednesday. The UK monthly GDP report and U.S. unemployment claims on Thursday will also be key indicators to watch.