Dear subscribers,
Earlier this week, the crypto market showed signs of renewed strength. Altcoins were outperforming bitcoin and the risk of a pronounced drop decreased. The tides changed towards the end of the week as fear spread over from traditional markets in a low liquidity environment. Although in the red, bitcoin outperformed altcoins.
For the complete analysis and bitcoin’s development, be sure to check out Uncharted #21.
Let’s dig in!
TL;DR
Bitcoin’s bullish momentum shattered and the price action got rejected at the $25k resistance level as fears spread over from traditional markets.
Swissblock’s Bitcoin Risk Signal crossed over to the high-risk zone driving the demand for downside protection.
Fewer coins on exchanges and shy traded volume suggest a low liquidity environment, limiting buying pressure.
Ethereum’s open interest exceeded bitcoin as the altcoin season remained in full swing.
Altcoins are losing steam while bitcoin outperformed in an increasing risk environment.
How strong is bitcoin’s trend?
Bitcoin’s price action was rejected at the $25k resistance level, after briefly surpassing this mark on Sunday, August 14th, and retraced to the low $20k level. Consequently, Swissblock’s Bitcoin Risk Signal reverted and crossed over to the high-risk zone as fears spread across markets.
Figure 1: Bitcoin’s upward trend shattered
Even though the risk of a pronounced drop seemed to ease earlier in the week, liquidity remained low, limiting the firepower required to break above the $25k resistance level. As the low liquidity environment persisted, volatility increased and the buying power was insufficient to withstand the renewed weakness that spread over from equity markets. Notice how the traded volume has decreased since July and more coins have been withdrawn from exchanges (Figure 2).
Figure 2: Low liquidity environment limiting bitcoin's price action
From an on-chain perspective, the total transferred volume has increased since July’s 41% decrease month-over-month, driven by transaction sizes of $10 million-plus (Figure 3). When combining the transaction size breakdown with the exchange net position, we can infer that big players withdrew more coins from exchanges, limiting the potential selling pressure, but also the short-term buying pressure.
Figure 3: Big players withdrawing from exchanges
In the future market, we can observe that open interest has increased despite the lower traded volume (Figure 4). A rise in open interest during an uptrend suggests new positions entering the market, but the bullish trend is confirmed once the volume picks up.
Figure 4: Strong open interest while volume is missing to confirm the trend
Cash-margined positions have been the key driver behind the upturn in open interest. Usually, when the cash-margined open interest exceeds the crypto-margined (Figure 5), investors are more cautious - less confident - since a move against their position can trigger liquidations.
Figure 5: Skin in the game but with reduced exposure to liquidations
The options market also hinted at cautionary behavior as bitcoin began to drop. Notice how the open interest rate of change accelerated as the put-to-call ratio reverted due to stronger demand for downside protection (Figure 6).
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