Market Crash - What Happened?

Yesterday, the cryptocurrency market experienced a significant downturn, with substantial declines across all digital assets as Bitcoin dipped to $64,000. Although it is hard to identify the main reason behind such a volatile move, we can predict where the market could go based on the recent sentiment. From our analysis we see that in the BTC/USDT-M (Binance margin) market, there are many long positions in the 61-64k range. This indicates strong buy interest at these levels, suggesting that traders are looking to capitalise on potential dips to these price points.

Why it Happened

The reasons behind such volatile price movements are often multifaceted. There are several factors that we believe played a role in this recent market behaviour:

Technicals:

Funding Rates and Premiums - The funding rates on both ByBit and Binance were at very low levels, indicating that there were a lot of shorts opening in the market and less longs. The premium on Binance and Bybit, which reflects the difference between the futures price and the spot price, turned negative. This indicates that futures sellers are willing to pay a premium to be short, which is signalled bearish sentiment.

Open Interest - Open interest, which measures the total number of outstanding derivative contracts, was at record highs, indicating a large amount of capital in the market. We noted that if open interest continues its uptrend, it could trigger an explosive move, and due to the other indicators it was likely to be to the downside. Often we can see market makers playing a game in which they move prices to rinse open interest and grab liquidity.

Fundamentals:

Despite no significant changes in fundamentals, the macroeconomic conditions remain unfavourable for risk-on assets like digital assets.The anticipated number of rate cuts for this year decreased from three to one, likely in December. Current Fed interest rates are at 5.5%, compared to almost 0% in the previous cycle, leaving less household capital available for investment

Furthermore, Altcoins, excluding Ethereum, are valued at $300 billion, compared to under $100 billion at the start of the last cycle, requiring significantly more liquidity to drive substantial price increases.

2024 Post-Halving Miner Capitulation:

Bitcoin Miners make up the majority of sellers in the market, with billions of dollars worth of Bitcoin being sold on the open market every year to pay for their operating expenses. When a Bitcoin halving occurs, miners revenue in terms of BTC is halved, and if price does not increase mining becomes unprofitable, meaning inefficient miners go out of business, selling any spare Bitcoin they have whilst the top mining companies continue. This results in less Bitcoin will be mined and less spot sellers in the market.

Bitcoin Weekly Price Chart

Altcoin Plummet

The bearish sentiment created quite an extreme drop in the altcoin market. Many altcoins saw double-digit percentage losses as investors moved to reduce their exposure to these riskier assets. This massive sell-off was heightened by high leverage in the market, leading to a a large amount of long liquidations. If we look at Solana we it was down as much as 22% from its weekly high to low. As we trended down and longs became liquidated, we saw a flush sell off all the way to $127 before a slight bounce back to $141.

Solana Weekly Price Chart

SEC drops investigation into Ethereum

The U.S. Securities and Exchange Commission (SEC) has closed its investigation into Ethereum 2.0 and ConsenSys. This investigation, which began in March 2023, focused on determining if Ethereum and its transition to a proof-of-stake mechanism, should be classified as a security under U.S. law. Despite the long investigation, the SEC has not taken enforcement action against Ethereum or ConsenSys.

The regulatory uncertainty surrounding Ethereum’s classification has been a significant issue for the crypto industry, especially given the SEC's previous indication that Ethereum was not considered a security under former chairman Jay Clayton. ConsenSys's legal action against the SEC aimed to clarify this regulatory uncertainty and protect the Ethereum ecosystem from potential overreach by the regulator.

U.S. Bitcoin ETFs

This week Bitcoin ETFs have experienced mostly negative flows, reflecting the bearish sentiment in the market. The US ETF's current hold around $60 billion Bitcoin in assets under management (AUM) and have reached a cumulative total volume of over $300 billion. Blackrock's Bitcoin ETF, IBIT, is the fastest growing ETF in the history of ETFs

However, in other news the Australian Securities Exchange’s (ASX) has approved its first ever Bitcoin ETF from VanEck, which is set to launch on June 20, 2024. This milestone amplifies the global acceptance of Bitcoin as an asset class and will encourage even more institutions and investors to gain exposure to this growing industry.  

Bitcoin ETF Flow Table (US$m)

Trump memecoin Fake?

A Solana-based memecoin called TrumpCoin (DJT) has experienced a notable surge, largely fuelled by unverified claims linking it to Donald Trump himself. This rise is part of a broader trend where several memecoins on the Solana blockchain have seen increased activity such as MAGA, driving record-high volumes on decentralised exchanges and boosting the total value locked within the network. This led to the token reaching a valuation of over $350 million in less than 5 hours, however on polymarket only 17% of the market believe it is really Donald Trumps token.

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