Market Wrap: Bitcoin Dips, Stocks Plummet as Volatility Spikes
Traders continue to hedge against further price declines.
May 18, 2022 at 8:14 p.m. UTC
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Bitcoin (BTC) declined by nearly 3% from a high of $30,654 on Wednesday, tracking losses in U.S. stock markets, which included a drop of over 1,200 points on the Dow Jones Industrial Average and losses of over 4% on the Nasdaq and S&P 500.
The cryptocurrency has been stuck in a tight trading range over the past few days, although volatility remains elevated. That could increase the risk of greater price swings or a potential breakdown on the charts.
For now, alternative cryptos (altcoins) continue to underperform bitcoin, indicating a lower appetite for risk among crypto traders. For example, ether (ETH) was down by 4% over the past 24 hours, compared with a 3% dip in BTC over the same period. Solana's SOL token declined by 7% and Decentraland's MANA token was down by 10% on Wednesday.
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The stock market declines came after retail and tech stocks underperformed on Wednesday. Also, the Chicago Board Options Exchange's CBOE Volatility Index (VIX), a popular measure of the stock market's expectation of volatility based on S&P 500 index options, ticked higher on Wednesday, reversing a week-long downtrend.
Latest prices
●Bitcoin (BTC): $29,225, −2.67%
●Ether (ETH): $1,975, −3.28%
●S&P 500 daily close: $3,924, −4.03%
●Gold: $1,814 per troy ounce, −0.21%
●Ten-year Treasury yield daily close: 2.89%
Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.
Volatility returns
Bitcoin's short-term realized volatility remains elevated as the cryptocurrency struggles to hold the $30,000 price level. And implied volatility (based on the market's expectation for movement over one week), ticked higher on Wednesday. That suggests price action could remain choppy as traders react to macroeconomic risk and turmoil in the stablecoin market.
Option market data still shows increased demand for puts versus calls, which means traders are actively hedging the risk of continued price declines.
Currently, the options market places a 66% probability that BTC will trade above $25,000 in June, according to data provided by Skew.
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Sellers in control
The chart below shows the ratio of buy volume divided by sell volume in bitcoin's perpetual swaps market, a type of derivative trading product similar to futures in traditional markets.
Values greater than 1 indicate bullish sentiment, while values less than 1 indicate bearish sentiment. The 50-day moving average of the buy/sell volume ratio has declined over the past two months, indicating persistent selling pressure.
Further, the ratio is still above prior lows, which suggests the downtrend in BTC's price could continue until buyers return with greater conviction.
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Altcoin roundup
- Do Kwon plans to put Terra back on track: Terraform Labs founder Do Kwon on Wednesday morning announced an on-chain governance proposal even as results from a preliminary online poll on a hard fork plan found minimal backing among community members. The new chain would entirely cut out the failed UST product and instead focus on decentralized finance (DeFi) applications building on Terra. Read more here.
- Aave's decentralized social media platform arrives on Polygon: Lens Protocol opened on the Polygon blockchain mainnet Wednesday. Built by Aave Companies, it allows developers to build their own decentralized social media networks in which users fully own their data. The protocol was first announced in February, but now people can starting minting their profiles. Read more here.
- NFT-focused venture fund: Hackathon organizer DoraHacks has raised $20 million in a funding round led by FTX Ventures, the investment arm of crypto exchange FTX, and Liberty City Ventures. The capital will be used to drive the launches of the Dora Grant DAO, a decentralized grant community, and Dora Infinite Fund, a venture fund focused on non-fungible tokens (NFT). Read more here.
Relevant insight
- Block Sees Bitcoin Disrupting Payments Networks, Expects Self-Custody to Grow: Chief Financial Officer Amrita Ahuja said the crypto could become a "global currency for the internet."
- Bitcoin Miner Argo Blockchain Emerged Unscathed From Its UST Stake: The company said it was able to sell its minimal UST stake for around 93 cents per token before the price completely collapsed.
- SEC’s Gensler Uses Crypto Oversight Needs as Case for Higher Budget: Securities and Exchange Commission Chair Gary Gensler told U.S. House budget appropriators that he’d like to be doing more to protect crypto investors.
- Binance in Talks for Regulatory Approval in Germany, CEO Says: Changpeng Zhao says the crypto exchange is recruiting compliance personnel in the country.
- Swiss ETP Issuer 21Shares Dives Into US Market With 2 Crypto Index Funds: The new funds are its first crypto products for U.S. customers and will only be available to accredited investors.
- Argo Blockchain Q1 Net Income Plunges 90% to $2.1M: Bitcoin was priced in the $40,000 range for much of Q1 compared with nearly $60,000 in the same period a year earlier.
- Nearly 5,505 ETH, or $10M of the $625M Ronin Exploit, Is on the Move: Funds connected to the Ronin exploiter address are making their way through Tornado Cash, blockchain data shows.
Other markets
Most digital assets in the CoinDesk 20 ended the day lower.
Biggest Gainers
Biggest Losers
| Asset | Ticker | Returns | DACS Sector |
|---|---|---|---|
| Bitcoin Cash | BCH | −7.2% | Currency |
| Polygon | MATIC | −6.7% | Smart Contract Platform |
| Polkadot | DOT | −6.6% | Smart Contract Platform |
Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.
UPDATE (May 18 20:45 UTC): Adds information on the U.S. stock markets and their declines.
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Damanick was a crypto market analyst at CoinDesk where he wrote the daily Market Wrap and provided technical analysis. He is a Chartered Market Technician designation holder and member of the CMT Association. Damanick is also a portfolio strategist and does not invest in digital assets.