(Kitco News) There may be a pause in the massive liquidations that led to this crypto winter, as many notable players are not allowed to touch assets until bankruptcy proceedings are resolved, according to crypto market data provider Kaiko.
Last week, the cryptocurrency space was in the midst of a strong rally, with Ethereum outperforming Bitcoin. At the time of writing, the rally has slowed. Bitcoin is trading at $21,486, up 3.4% on the day, and Ethereum is trading at $1,490, up 8.6% on the day.
“The last few months have been very difficult for the cryptocurrency markets. There have been a lot of liquidity issues, especially since all the lenders going through bankruptcy proceedings created a lot of problems. The most liquid cryptocurrencies have been hit because they are usually the first ones to get liquidated when you need to support your budget. public debt, repaying a loan, or exiting volatile markets.”
After Bitcoin plunged to $17,000 in mid-June, the cryptocurrency has likely found its bottom. The same holds true for the rest of the cryptocurrency market, Medali said. “We may have reached the bottom,” she said. “Many indications are that the markets may turn.” “Overall, the cryptocurrency markets are still highly correlated. Normally, when Bitcoin goes up, other markets will go up. Crypto markets will be at their peak when we see divergence in correlations across different cryptocurrencies. At the moment, they are still very closely correlated. “
One major signal is the bankruptcy proceedings in which lenders such as Celsius, Voyager and 3AC will stem the tide of outflows.
Medali noted that “since all of these companies are on the way to bankruptcy proceedings, it will take some time before they are allowed to liquidate the assets they own.” “This could have stopped the liquidations that have caused the market to plummet over the past few months. What liquidated in the short term future could be all there is in the next few months. Due to the many legal actions against them, it is likely that they will not be allowed to They can touch what they are holding until they get approvals from the legal authorities.”
However, the risks of contagion in cryptocurrencies remain as more information is revealed regarding who lent money to whom.
“Almost every day, we still see new revelations about who lent money to 3AC or deposited it in Celsius,” Medali added. “We are still seeing the after-effects of the collapse of these large crypto entities. But it is definitely slowing down.”
The next big event for cryptocurrencies will be how the market reacts to a potential 75 basis point increase in the Federal Reserve — the second rate increase of this size in a row.
“The main drivers of the current crypto markets have been mostly the macro. It will be interesting to see what happens after the upcoming Federal Reserve meeting. This will be a strong indication of how the crypto markets will react to macro moves over the next few months,” Medali noted. “Most of the macro correlations don’t look very good for Bitcoin at the moment.”
Bitcoin has a very strong inverse relationship with the US dollar – when the dollar goes up, bitcoin goes down. “And with the dollar hitting its highest levels in the last decade over the past few months against most other fiat currencies, that makes things difficult,” she said.
Also, Bitcoin has had a relatively high correlation with technology stocks. “This is not the best signal again because most stocks have seen very sharp declines, close to a bear market over the past few months,” she added.
Medali noted that bitcoin will likely remain sensitive to macro cues such as the latest inflation data or unemployment numbers until global markets stabilize or inflation drops and the Federal Reserve essentially neutralizes its monetary activity.
“For now, we are still in the midst of a historic increase in interest rates that the Federal Reserve will introduce over the next few months,” she noted. “When you have higher interest rates, it discourages investors from pouring money into riskier assets.”
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The Paris-based digital asset data provider is also monitoring developments in Ethereum Merge. This has led to a strong rally in Ethereum over the past two weeks, with the cryptocurrency up 44%.
Medalie described, “The news that the deadline for the Ethereum merger has been set for September 19 was the first time developers have provided a deadline. And so what we’re seeing is a merger consolidation, with investors very excited.”
It is the most significant upgrade in the history of the network, especially since the Ethereum network is the largest in terms of the total number of users. Although Bitcoin has the highest market capitalization in the space, as a network, it is not used by as many protocols as Ethereum.
“It will be interesting to see how the Ethereum Merge increases the use of DeFi protocols, specifically decentralized exchanges. It has been difficult to gain widespread adoption due to the high transaction fees on the Ethereum blockchain, and the fees are expected to be reduced significantly after the merger,” he added. my medal. “This could be a powerful incentive to increase liquidity on decentralized exchanges, and increase overall market efficiency and price discovery.”
One useful metric that Kaiko uses when trying to predict whether the bear market is over in cryptocurrencies is trading volumes.
“When trade volumes are flat or declining, that means most people take a wait-and-see approach. They don’t want to pour money into cryptocurrencies at this time. But if trade volumes are high or steadily rising, then that’s usually a good sign.” Medali said. “When you see a rise in trade volume, it usually means a price crash.”
What investors want to see is a steady increase in volumes over time. She noted, “This is what has particularly alarmed some investors when looking at exchanges like Coinbase or some other exchange that has been declining in volume over the past few months. This suggests that more institutional capital is coming out of the market.”
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