The data shows that BTC’s rally to $18,300 is the only Santa Claus rally Bitcoin will see before the end of the year.
With the onset of the coldest days of the crypto winter, investors’ speculative interest in the cryptocurrency market has dropped to pre-2021 levels, dampening the chances of a significant directional price move. However, there is a possibility of a bullish-style bear rally in July-August 2022.
The market enters a state of limbo
The FTX boom affected more than 5 million users worldwide, negatively affecting a large number of crypto companies exposed to it. As US-based cryptocurrency broker Cumberland echoed in a recent tweet, the industry is currently in recovery mode. The company stated that “dozens of crypto companies have either been severely downsized or gone bankrupt, and the future for the industry is as cloudy as ever.”
The data shows that it will be difficult to create a sustained upward movement as the market is pushed back into a regime of low liquidity and volatility.
Crypto analytics firm Glassnode has reported a “slump” in bitcoin futures contract volumes
This goes back to levels prior to 2021, when the bitcoin price crossed $20,000 for the first time.
Bitcoin (orange) and ether (blue) futures volume. Source: Glassnode
The volume of open interest on Bitcoin and Ether futures contracts dropped dramatically in mid-2022 after the collapse of Luna-UST. The BTC and ETH leverage ratio index, which measures the ratio between the volume of open interest, is currently down between 2.5% and 3.1%.
Bitcoin spot trading volumes on cryptocurrency exchanges have also fallen precipitously towards their lowest levels in 2020. Data from Blockchain.com shows that the seven-day moving average volume of bitcoin trading fell to $67 million, compared to $1.4 billion near the market peak. rising for 2021.
Bitcoin spot trading volume. Source: Blockchain.com
With low liquidity and a cloud of market uncertainty, there is a strong possibility that the bear market is not over yet. Bitcoin’s realized volatility also dropped to two-year lows of 22% (one week) and 28% (two weeks).
Looking ahead, volatility may remain muted with more sideways moves or a slowdown in bearish price action. However, there is still a chance of a bear market rally in the short term.
Rising Bitcoin prices and falling in the game?
The concussion from FTX in November was similar to the LUNA-UST boom seen in June, and these events often cause panic selling, making an asset attractive to bargain hunters looking to buy.
As a result, a short-term bullish rally, which can last for several days or weeks; This is exactly what happened from July to August when the Bitcoin price skyrocketed to $25,000. Based on November’s institutional buying and vibration levels, Bitcoin could see a similar bear rally.
A measure of realized profit and loss for long-term owners has fallen to an all-time low, indicating potential oversold conditions. The long-term holder realized that losses only reached levels similar to the lows of 2015 and 2018.
Profit and loss by rotational bands. Source: Glassnode
In addition, the futures market is currently retroactive, which means that there are more short positions open than long positions. Throughout Bitcoin’s history, similar conditions only lasted for short periods of time, triggering a short-term pump to squeeze out short-term orders.
BTC futures market swaps and 3-month rolling basis. Source: Glassnode
The trend of backlogs between institutions and whales, which had remained negative for most of this year, turned positive in mid-November. The surge in the hands of these investor groups provided a headwind to the bear market rally in the third quarter of this year.
CoinShares reports that institutional Bitcoin investment vehicles have seen total inflows of $108 million following last week’s $17 million boom in FTX. Notably, the current flows are much lower than the 25th and 35th weeks of this year, which led to a significant rally towards $25,000.