Bitcoin underperforming major alts and U.S. equities

27 Jun 2022

Bitcoin underperforming major alts and U.S. equities

Bitcoin sees a slow week with prices mostly oscillating around $21,000. In the last seven days, BTC has underperformed U.S. equities, seeing a 3% gain, compared to S&Ps 5.6% and Nasdaq’s 6% gains over the same period.

Ether (10%) and BNB (11%) outperform both BTC and U.S. equity indexes, as the altcoin market has seen a welcome recovery after weeks of red. Ether saw its first green weekly close since March 28th last week, ending the 11-week-long trend of red candles.Bitcoin’s relative underperformance to both equities and altcoins in this highly correlated environment is likely caused by the ever-growing contagion effects related to UST and 3AC’s collapse, placing centralized lenders in between a rock and a hard place amid a combination of defaults and bank runs. The market is paying close attention to how the current imbalances are resolved, putting a tight leash on BTC’s ability to see a substantial recovery.

Preview

Source: Tradingview (Coinbase, Binance US)

Smaller altcoins have seen strong recoveries in the last seven days, with Polygon’s native token MATIC surging 35.2% after Polygon’s development team launched a product allowing for more private voting in DAOs.

Preview

Source: CoinGecko, messari.io

Bitcoin has underperformed in June

Bitcoin has been punished for its higher liquidity than smaller cryptocurrencies as distressed market participants have been forced to unwind their most liquid assets.Bitcoin has seen 35% of its value shaven off in June. All indexes we follow have outperformed bitcoin in ascending order after their sizes. The Small Caps are the best performers after declining by 22%, followed by the Mid Caps (-24%) and the Large Caps (-33%).

Preview

Source: Bletchley Indexes, Tradingview (Coinbase)

The bitcoin dominance continues to drop. It reached 48% on June 11th but has since plummeted to 42.5%. ETH also continues underperforming, as indicated by a decline in the ETH dominance from almost 20% in May to 15.6%.Interestingly, we also see slight declines in the market shares of stablecoins. This, together with the fall in bitcoin dominance, is typically indicative of a market with a high-risk appetite, but the market sentiment is currently extremely poor.

Preview

Source: CoinMarketCap

The smaller coins' outperformance results not from a re-emergence of risk-taking behavior, but from distressed market participants being forced to liquidate assets. Larger cryptocurrencies, particularly BTC and ETH, are much more liquid than smaller coins, so the creditors unwind these first.A continuation of the market drop may force these distressed players to start liquidating their holdings of small caps as well, a situation that could lead to massive price drops for these illiquid coins.

The prolonged extremely fearful sentiment continues

The sentiment in the crypto market remains significantly affected by a continuous flow of negative news and rumors related to different market participants. Thus, the market sentiment remains in an extremely fearful territory—as signaled by The Fear and Greed Index. Although little has changed since last week, the index has climbed one point—currently sitting at 10—following bitcoin’s price consolidation in the $19,800-21,700 range over the last week.

Preview

Source: Alternative.me

Plunging bitcoin spot activity

The 7-day average bitcoin spot trading activity has substantially dropped over the past 9 days—down from $9.2 billion on June 19th to $3.8 billion this Monday, which represents a 58.7% drawdown. Over a 9-day period, a decline in trading volume this sharp has not been observed since November 8th, 2019—excluding the fall from the recent peak around May 15th, where we saw a 62% hit to trading volumes. The uncertain market conditions may have caused traders to become more cautious, and by extension, their trading activity has been reduced.

Preview

Source: Skew, Tradingview (Binance, Binance US, Bitfinex)

The bitcoin price is stabilizing above $20k

Seven days ago, bitcoin's 7-day volatility hit its highest level since May 2021. The market has since been calm, with the bitcoin price stabilizing just above $20k. The market's recent stability has led bitcoin's 7-day volatility to drop to 3%, a relatively low level historically. Although the market has stabilized, traders are still prepared for another volatility uptick as the implied volatility from option prices is higher than at similar volatility levels during the spring.

Preview

Source: Tradingview (Coinbase)

This was our weekly spot market update. Click here to read our update on the derivatives markets.