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Make or Break For Crypto Markets

Oct 6, 2021 · 4 min read

By Ashwath Balakrishnan

Market Update

Today was starting to look despondent, with BTC seeming to have rejected a key trend line, and other crypto assets plunging. But towards the North American open, BTC posed a stern reversal (as you’ll see in this post) and pulled the rest of the market up with it. In other news, dog coins are all the rage again. SHIB price is up over 80% in the last 24 hours, and other dog coins have followed suit. The last time dog coins pumped, it was a sign of ridiculous froth and coincided with the April/May top. Do with that information what you will.

Trend Break
  • BTC/USD technicals flipped into bullish territory after breaking above a key trend line. The move was catalyzed by significant spot buying at the North American open.
  • As we’ve mentioned in the past, a break above upper trend lines doesn’t confirm a reversal on its own. Price needs to remain above the trend line and consolidate there for the break to be valid. Crypto markets are all too familiar with “fakeouts.”

Bitcoin SZN
  • The total market cap of crypto excluding BTC has been choppy over the first week of October. While this was happening, BTC dominance started to sneakily creep up. Watching capital rotation from one sector of crypto to another has been key to figuring out which assets are likely to outperform in the short-to-mid term.
  • Over the long term, BTC dominance is still trending downwards — and it’s very likely to continue trending down as other crypto assets attract capital. However, with BTC finding strength late into the day on significant spot purchases, the odds are in its favor for the up trend to manifest in the near-term.
Spot Volumes Inch Up
  • Spot volume on Binance, FTX, and Coinbase has almost doubled since the end of September. Considering crypto has become a derivatives dominated market of late, seeing a resurgence of activity in spot markets inspires some confidence.
  • The implications of a spot-driven move on traders’ leverage is interesting. A spot rally doesn’t mean there’s no leverage. Exchanges also lend stablecoins to their customers, which are then used to purchase spot assets. However, given the relative ease of obtaining leverage on futures vs. spot, a spot rally would imply that overall leverage is much lower than it would be on a futures-driven move.
  • It’s worth mentioning that there was significant activity on perpetuals too. But this was primarily caused by shorts getting stopped out rather than organic buying.

 

DeFi Down Bad, Potential For a Reversal?
  • DeFi assets are now the neglected child of crypto markets. After a strong rally into the year, DeFi has gotten battered when priced against ETH. And this is after taking ETH’s 60% drawdown in May into consideration.
  • Early this year, BTC and DeFi rallied together without ETH. This is purely conjecture, but if the BTC rotation idea ends up playing out, it could breathe new life into DeFi blue chips. They’ve been out of favor for the best part of the last 8 months, and seeing a strong bout of mean reversion (at the least) wouldn’t be too surprising.

 

Notable Tweets

Deribit usually has the highest futures basis, and CME the lowest. CME’s basis has now exceeded Deribit’s, implying large futures purchases on CME.

 Artifical intelligence and NFTs: notes from Altered State Machine’s appearance on The Delphi Podcast!

So, you though crypto was the only asset class with crazy volatility?

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