Market Wrap_ Cryptos mixed as volatility eases, traders expect weak rally

Market Wrap_ Cryptos mixed as volatility eases, traders expect weak rally

Bitcoin's average trading volume rose to its highest level since January, which may indicate a brief period of price stabilization.

Bitcoin (BTC) was roughly flat on Monday, while some alternative cryptocurrencies (altcoins) underperformed, suggesting lower risk appetite among traders.

LUNA, Terra's governance token, fell 18% in the last 24 hours, compared to a 6% drop in GALA and 5% declines in AVAX and DOT over the same period. Due to their higher risk profile, alts tend to fall more than bitcoin in down markets.

Nevertheless, the increase in trading volume during last week's sell-off, combined with the easing volatility, could point to a brief upswing in crypto prices.

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Technical indicators are pointing to a weak rally in Bitcoin, which will require another weekly close above $30,000 to spur buying activity. Still, the rally could fade at around $33,000-$35,000 due to negative momentum signals on the charts.

Meanwhile, Terraform Labs CEO Do Kwon released a "revival plan" to save the Terra network after last week's collapse. Kwon proposed to fork Terra into a new chain without terraUSD (UST). The plan could go into effect if token holders agree to it. Read more here.

During the UST depression last week, other major stablecoins such as USDC, BUSD and DAI experienced a 1% to 2% premium as investors focused on assets they believed were less vulnerable to contagion," Glassnode wrote in a blog post. That suggests the risks around UST are contained for now.

Latest prices

●Bitcoin (BTC): $29,727, -1.98%

●Ether (ETH): $2,017, -3.39%

●S&P 500 daily close: $4,010, -0.36%

●Gold: $1,823 per troy ounce, +0.88%

●Ten-year Treasury yield daily close: 2.88%.


Bitcoin, ether, and gold prices are determined at approximately 4 p.m. New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information on CoinDesk indices can be found at coindesk.com/indices.

Increase in Trading

ActivityBitcoin's

average

trading volume rose

last week to its highest level since January. This occurred at a time when sentiment was extremely bearish.

This past weekend, trading volume declined, but is still high - almost double the average volume in April, according to Arcane Research.

In the futures market, open interest in bitcoin - the total number of derivatives contracts outstanding on the Chicago Mercantile Exchange - has continued to decline since the recent peak on March 28. This suggests that the recent selloff is due to trading activity in the cash market rather than leveraged traders in the futures market, although liquidations have accelerated the downward movement of the price.

Bitcoin's implied volatility also remains elevated following last week's selloff. In addition, intraday volatility has reached its highest level since May last year, according to Arcane Research.

"The main reason for the increase in intraday volatility is massive destabilizing effects in derivatives due to the unwinding of leveraged positions, which in turn impacts all related markets," Arcane writes.

Typically, spikes in volatility are short-lived, especially when price declines stabilize. Some traders remain cautious due to the weak recovery in crypto and equity prices after last week's sell-off.

QCP Capital, a Singapore-based crypto trading firm, said it intends to keep long positions open in volatility in anticipation of choppy markets, according to a recent Telegram message. The company is awaiting news on the aftermath of the Terra stablecoin debacle, which could create additional volatility in the future.

Others are looking for ways to offset the increase in volatility. "In the short term, spot prices have likely bottomed, while option volatility has likely peaked," Greg Magadini, CEO of Genesis Volatility, wrote in a blog post Sunday.

"Should prices stabilize and surge, fading skew is a premium volatility trade," Magadini wrote, referring to the expected decline in relative volatility of put options versus call options.

Altcoin Overview

  • Morgan Stanley warns on NFTs: The bank said non-fungible tokens (NFTs) could be the next part of cryptocurrency to be re-evaluated after DeFi (decentralized finance) tokens and stablecoins were liquidated "as it becomes increasingly clear that any elevated prices were traded on speculation, with limited genuine user demand." Read more here
  • UST Reserves Evaporate: Luna Foundation Guard, the non-profit organization tasked with rescuing Terra's stablecoin UST in a crisis, has broken its multi-day silence and confirmed that its reserves, once $3 billion and held mostly in bitcoin, have shrunk to $100 million. As UST entered a death spiral, LFG said it sold the reserve to restore UST's connectivity, dismissing claims that it bailed out insiders. Previously, blockchain analytics firm Elliptic had tracked the money to major exchanges Gemini and Binance. Read more here
  • Investors flee stablecoins: As the market tries to digest the cryptocurrency's Lehman Brothers moment after the UST implosion, most stablecoins saw heavy outflows as investors lost confidence. Tether (USDT) lost $8 billion in market cap in May, and dai (DAI) supply fell 20% and frax (FRAX) nearly halved, according to CoinMarketCap data. Meanwhile, the Fantom blockchain's algorithmic stablecoin, Deus Finance's dei, lost its peg during the day. Read more here

Relevant Insights

  • Listen 🎧: The CoinDesk Markets Daily podcast team is back to discuss what a new crypto mining law could mean for the New York economy.
  • Crypto funds saw the highest inflows of the year as the Terra crisis crashed markets, with some $274 million flowing into digital asset funds as investors bought the dip amid a broad selloff in the crypto market triggered by the Terra turmoil.
  • Portugal makes U-turn on cryptocurrency tax: in a departure from its previous hands-off stance, the country will impose taxes on the exchange and sale of cryptocurrencies.
  • German regulator calls for new DeFi laws: BaFin's Birgit Rodolphe cites potential for fraud and investor losses.
  • Japan's Nomura to Launch Crypto Unit with DeFi and NFTs: The Japanese investment bank traded its first cryptocurrency derivatives last week.
  • ECB's Panetta: Digital euro could come out within 4 years: Peer-to-peer payments could be an initial test case, though no final decision has been made on a digital euro.
  • Nigeria's SEC confirms all digital assets are securities in new set of rules: The rules aim to clarify the role of cryptocurrencies in the economy by establishing a regulatory framework.
  • Reserve Bank of India: cryptocurrencies could lead to 'dollarization' of economy: RBI officials said cryptocurrencies could undermine the central bank's ability to regulate the flow of funds.
  • Celsius Network is filing a draft S-1 form to take its mining unit public: The filing is expected to go into effect after the SEC completes its review process, subject to market and other conditions.
  • U.S. and EU look to blockchain to track greenhouse gas emissions: The U.S.-EU Trade and Technology Council's Climate and Clean Technology Working Group announced its goals in a joint document released Monday.

Other MarketsMostdigital

assets in the CoinDesk 20 ended the day lower

.

Biggest Gains

Asset Ticker Returns DACS Sector
Algorand ALGO +2.6% Smart contracts platform
Biggest

losers

Asset Ticker Earnings DACS Sector
Internet Computer ICP -6.9% Data Processing
Filecoin FIL -6.7% Computing
Polkadot DOT -6.3% Smart contracts platform
Sectors are classified

using the Digital Asset Classification Standard (DACS), which was developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.