Market Wrap: Crypto Pullback Deepens; Expect Higher Volatility
Analysts expect higher volatility ahead of Friday’s month-end expiry.
Cryptocurrencies were mostly lower on Thursday as bullish sentiment wanes. Stocks were also lower as Federal Reserve Bank of Dallas President Robert Kaplan mentioned during an interview on CNBC that he would like to see tapering of bond purchases announced in September.
Bitcoin was trading around $46,000 at press time and is down about 4% over the past 24 hours. Technical charts suggest the pullback could stabilize between the $42,000-$45,000 support zone.
Traders will be monitoring Friday’s month-end option expiration, which could be a source of volatility. “The moderate volatility in BTC price this morning is likely due to an estimated $1.8 billion of monthly BTC options set to expire tomorrow,” wrote FundStrat in a newsletter on Thursday.
“The current max pain level, according to the derivatives exchange Derebit, is at $44,000,” FundStrat wrote.
For now, digital asset manager StackFunds wrote in a Thursday report that further consolidation is expected around current levels before the next upside push.
- S&P 500: 4470, -0.58%
- Gold: $1,793, +0.11%
- 10-year Treasury yield closed at 1.35%, compared with 1.347% on Wednesday
Bitcoin whales selling
Large bitcoin holders, often referred to as whales (addresses with 1,000-10,000 BTC), have been distributing their holdings, according to blockchain data. Smaller bitcoin holders (addresses with 1-1,000 BTC), however, have been adding to positions, which could mean that retail investors have fueled the recent bitcoin rally.
The fact that large holders are in profit taking mode is an “unfavorable situation and leans bearish,” crypto research firm Delphi Digital wrote in a blog post.
Higher volatility expected
“There has been a clear decoupling between short-term and long-term volatility since August 9,” options data provider Skew tweeted on Thursday. “Traders are expecting bitcoin volatility to ramp up in the later part of the year.”
The options market has also flipped bearish for the short term, with the one-week put-call skew reporting positive values at press time. That’s a sign of short-term puts, or bearish bets, drawing higher demand than calls, wrote CoinDesk’s Omkar Godbole.
Bitcoin miner positioning
Bitcoin miners are back in accumulation mode after the sharp sell-off earlier this year. The miners’ positioning index (MPI), which tracks the ratio of BTC leaving all miner wallets, stabilized around negative levels.
“In every bitcoin bull run, miners sell before the final cycle top,” CryptoQuant wrote in a blog post. “This occurred in 2013, 2017 and now in 2021 (as shown in the yellow boxes below).”
“Recently we have entered a short-term bear market, also considered a correction,” CryptoQuant wrote. It is possible that miners are waiting for higher prices to sell their BTC holdings.
Meanwhile, Bitcoin’s mining difficulty – a measure of the amount of computing resources required to mine bitcoin – has increased for the third time in a row in yet another sign of the network’s staying power following a crackdown on the industry earlier this year by authorities in China.
On Wednesday, the blockchain’s mining difficulty increased by 13.2% at block 697,536, according to several mining sites.
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