Crypto Market: Bitcoin Regain Strength, as Short Positions Unravel
Bitcoin shorts are unwinding positions as we are coming to the end of the month. Traders are closely watching any signs of capitulation.
Bitcoin traded higher on Tuesday, rising about 6% over the past 24 hours time frame. Cryptocurrencies are in relief mode as selling pressure from May stabilizes in a tight range between $30,000 and $40,000. Traders are watching for signs of capitulation as bitcoin appears to be oversold and shorts unwind positions.
The crypto markets have shown resilience despite regulatory crackdowns in China, Canada and the U.K. On Monday, Reuters reported that several companies have abandoned their efforts to register with the U.K.’s Financial Conduct Authority amid mounting regulatory scrutiny on the crypto industry.
“Prices rising in the face of bad news may be a sign of the seller exhaustion we need to go higher.”
At the time of writing Bitcoin is trading at $35,415 and Ethereum at $2,140, both up around 2% in 24-hour range.
What’s next?
According to Grider, this could continue to be a choppy market for a bit as prices re-establish their trend, and we could even retest the $31K level, but overall, we remain in the bullish camp over the balance of the year.
From a technical perspective, bitcoin’s long-term trend remains intact despite the loss of intermediate-term momentum. The $34,000 price level has prevented secondary support near $27,000 from becoming relevant, said Katie Stockton, managing partner at Fairlead Strategies.
Stockton the uptrend will continue:
“We would view a breakout above the 50-day moving average [around $38,000] as a positive catalyst supporting a test of secondary resistance near $44K”
The big economic data point analysts are awaiting this week is Friday’s U.S. jobs report, which could affect assets that are deemed to be risky, including cryptocurrencies.
Alexander Blum, managing partner at digital asset manager Two Prime said:
“If Friday’s employment numbers come in stronger than expected, market participants could anticipate the Fed raising rates sooner than expected.”
A strong jobs report could be bearish for digital assets in the near-term, according to Blum, while a weaker-than-expected number would be bullish.
Returns collide
Bitcoin’s year-to-date return of about 20% is beating the S&P 500 Index, but trailing the Thomson Reuters Core Commodity Index.
Chart shows year-to-date returns for bitcoin, stocks and commodities.
Over the past year, bitcoin and ether had a similar risk-adjusted performance to popular U.S. stocks such as Alphabet (NASDAQ: GOOG) and Tesla (NASDAQ: TSLA).
Chart shows Sharpe ratios (risk-adjusted return) for bitcoin, ether and popular U.S. stocks.
Bitcoin cycle decoupling
The current bitcoin bull cycle has decoupled from the 2013 and 2017 cycles. This is due to a combination of factors including regulatory crackdowns, environmental concerns and an occasional tweet from Tesla CEO Elon Musk, which interrupted the 2021 bull cycle.
According to Coin Metrics’ newsletter:
“It’s important to note that each cycle is ultimately unique.
Every halving has effectively signaled the start of a new cycle, with the 2013 cycle peaking 370 days after the first halving, and the 2017 cycle peaking 524 days after the second halving.”
Bitcoin is currently 413 days after the third halving, which occurred in May 2020, as shown in the chart below.
Chart shows recent bitcoin bull cycles.
Hedge funds unwind short positions
The open interest of bitcoin futures at CME Group in June is at a yearly low, with the open interest currently standing at $1.39 billion, according to data from Skew.
It shows that hedge funds are now unwinding their short positions as cash-and-carry trades, a strategy that aims to exploit differences between spot and futures market, are not lucrative anymore, according to Arcane Research.
Hedge funds were net shorting $1.5 billion worth of bitcoin contracts at its peak, and the number has fallen to $400 million, according to Arcane.
Bitcoin futures open interest at a yearly low.
Altcoins
Ethereum transaction fees: Ethereum transaction fees have dropped to their lowest since December because blockchain activity has cooled while use of Ethereum layer 2 solution protocols such as Polygon (MATIC) has heated up. Gas refers to the computational efforts required to execute specific operations on the Ethereum network. A fee, paid in ether, is required to successfully conduct a transaction on Ethereum.
DeFi Meets AI: Fetch.ai, a Cambridge, U.K.-based artificial-intelligence lab with a penchant for crypto, has launched a service to combat the risk of losses across the experimental decentralized finance (DeFi) market. The DeFi Agents toolkit can be set to automatically withdraw users’ funds from Uniswap v2 and PancakeSwap based on predefined conditions such as the exchange rate for a given token dropping to a certain level.
