Cryptocurrencies Sees Fresh Signs of Green, But Will It Last This Time?

Investors hope for a Santa Claus rally into the year-end, a positive market performance next week. OI has also begun to rise.


The crypto market is seeing the first signs of green this Tuesday, with the total market cap aiming for $2.4 trillion.

In the past 24 hours, SPELL, ONE, HNT, AVAX, RUNE, and OHM are leading the gains of 15% to 20%. Meanwhile, YFI, SPELL, AR, AVAX, and LUNA recorded 50% to 80% gains in the past week.

Today, Bitcoin is hovering around $49k while Ether has managed to get back above $4k.

As central banks globally announce their tapering plans ahead of the end of the year, risk-on sentiments have been waning in the past few weeks.

“The macro talking points around Bitcoin as a store value, as an inflationary hedge, has definitely gained a ton of traction,” said Chris Matta, president of 3iQ Digital Assets. “And so what that means now in a risk-off environment is you’re starting to see Bitcoin maybe get a little more correlated to traditional assets.”

Still early in its adoption curve, Bitcoin has been moving in line with growth stocks. While U.S. equities have had a stellar year despite soaring inflation over the past few months, the trend has been more vulnerable to sell-offs.

But while the stock market slumped this Monday, the crypto market showed resilience. The S&P 500 slipped 1.1%, while tech-focused Nasdaq declined 1.2%. This has been in the wake of the Omicron variant cases in the US jumping as the winter holiday season approaches.

In addition, there has been an unexpected shelving of additional fiscal stimulus from President Biden’s Build Back Better plan. In response, Goldman Sachs cut its GDP forecast for Q1 2022 to 2% from 3%.

Already, last week, the Fed announced that it is doubling the space of its bond-buying tapering and is projecting three rate hikes in 2022.

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Typically, central banks turning hawkish is expected to negatively impact risk assets such as tech stocks and crypto, which become less attractive than safe-haven bonds. But real yields, which take inflation into account, are expected to remain low for a prolonged period of time.

“This could benefit crypto assets as the search for yields will push investors up the risk curve,” as per Kaiko.

However, with the markets oversold, investors hope for a Santa Claus rally into the year-end, positive market performance next week.

“​​Almost as if bad news can't keep prices down any longer. Crypto prices did a round trip while stock indices are barely 1% lower since Friday. Leaving the door open to some more omicron panic ahead, but feeling very bullish. Base case remains: Omicron is short-term noise,” noted trader and economist Alex Kruger.

Meanwhile, trade volumes have remained flat since May, hovering between $1-$3 billion, well below their levels from earlier this year as bearish sentiments keep traders off the market.

But BTC-TRY trade volume is approaching all-time highs amidst Lira’s plunge to new lows against USD. This has been despite Turkey's banning the use of crypto for payments this year. As the country’s fiat currency experiences historic depreciation, crypto adoption continues to gain traction.

The central bank of the country, as we reported, is pursuing an ultra-loose monetary policy by further cutting its key policy rate even while inflation in the country is running at 21% in November.

According to Chainalysis data, weekly trade volumes have grown significantly since 2020 from a few million to over 4 billion in TRY.

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Open interest, however, has also begun to rise, with Ethereum’s OI remaining near an all-time high after increasing steadily over the past few months. The OI has doubled since July to now at $5 bln.

“The trend suggests a growing interest for altcoin derivatives,” as per Kaiko.

In December, the OI took a drop after the sell-off that triggered deleveraging on crypto derivatives markets. ETH open contracts have shown resilience while Bitcoin perpetual OI has struggled to recover as it hovers around Sept-end levels of $9 bln. But in BTC terms, it has ticked up 10% following the late-last month wipe-out.

Funding rates, meanwhile, are still low but neutral, indicating that traders are cautious about taking new risks ahead of the end-year holiday season.

But for the market to take advantage of this OI, which can drive a trend reversal, there needs to be a natural move up first.

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