Sunday, January 23, 2022

Market wrap: Crypto traders reduce leverage, selling pressure decreases

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Bitcoin stabilized at around $ 41,000 on Friday and is down around 9% over the past week. Analysts expect prices to move sideways, although they may be vulnerable to further declines if technical assistance levels are violated.

The reduction in leverage in the bitcoin and ether futures markets could signal healthier market conditions. As a general rule, there is less chance of further downside volatility when traders reduce the size of their positions.

Earlier this week, “Based on the liquidation data, it appears that a few leveraged traders attempted to speculate on a rebound and got burned in the process,” Genevieve Yeoh, research analyst at Digital delphi, wrote in a blog post.

Liquidation, which can accelerate downward price movements, occurs when an exchange forcibly closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the initial margin of the trader. This mainly happens in futures trading.

For now, bitcoin remains near a three-month low, following declines in global stock markets.

Latest prices

  • Bitcoin (BTC): $ 41,928, -2.97%
  • Ether (ETH): $ 3,216, -6.11%
  • S&P 500: $ 4,677, -0.41%
  • Gold: $ 1,795, + 0.19%
  • The 10-year Treasury yield closed at 1.76%

Traders reduce risk

Some analysts are reporting signs of stabilization in the crypto markets after Wednesday’s sell-off. After about $ 800 million in liquidations during falling prices, selling pressure may ease in the short term.

“We have already seen significant risk reduction in recent weeks with BTC and ETH perpetual swap funding rates close to zero,” David Duong, head of institutional research at Coinbase, wrote in a newsletter on Friday.

A perpetual exchange is a type of crypto derivative trading product, similar to traditional futures contracts.

“The leverage has been greatly reduced, reflected by the drop in the BTC base from 20% at the start of the third quarter of 2021 to 5% in January 2022 and the ETH base falling from 20% to 2% during the same period (according to Deribit), “Duong wrote. .

Foreign exchange outflows

The net flow of bitcoin and ether to and from the exchanges has tended to decline over the past year. This week, however, more BTC entered trading, which could signal a bearish shift in investor sentiment.

Net inflows imply investors’ intention to sell, while constant outflows represent a strong sense of ownership and remove the circulating supply from the market, paving the way for price increases.

While the recent surge in net inflows to the exchanges does not signal a change in trend, analysts are watching closely for a sustained rise similar to that of January, which could lead to a prolonged market sell-off.

Bitcoin net transfer volume to and from exchanges (Glassnode)ETH exit from exchanges (Coinbase Analytics)

Altcoin balance sheet

  • Ether liquidations: Traders have accumulated $ 182 million in losses on futures products tracked by ether in the past 24 hours, according to data from Coinglass Analysis Tools. That’s $ 14 million more than bitcoin-tracked futures contracts, which typically experience the biggest sell-offs in the crypto market, over a comparable time frame.
  • Serum fundraising: The protocol that underlies much of decentralized finance (DeFi) on the Solana blockchain is raising funds to expand its operations, and around $ 70 million has been committed so far. Buyers in the fundraising cycle received both Serum’s SRM tokens as well as a portion of the ecosystem fund, with 85% going into the fund. Ecosystem funds are a growing trend among large projects. Read more here.
  • The land of avalanches: Algorithmic Money Market Wonderland has made a seed investment in the decentralized betting application based on Polygon BetSwap, the team said in a Publish Friday. The move marked one of the first examples of a community-run crypto project investing in a DeFi protocol, which is based on smart contracts instead of third parties in the provision of financial services.

Relevant news

Other markets

Most of CoinDesk 20’s digital assets ended the day lower.

The biggest winners:

Active Teleprinter Return Sector
Chain link LINK + 2.7% Computing
Cosmos ATOM + 0.2% Smart contract platform

Biggest losers:

Active Teleprinter Return Sector
Algorand SOMETHING -9.3% Smart contract platform
Solana GROUND -8.5% Smart contract platform
Ethereum ETH -7.3% Smart contract platform

Sector classifications are provided via the Digital Asset Classification Standard (DACS), 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.

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