The crypto market has begun the week on a negative note, with leading coins bitcoin (BTC) and ether (ETH) hitting multi-month lows. Traders said the market faces a shortage of bullish catalysts now that the Ethereum Merge is out of the way.
Bitcoin, the biggest cryptocurrency by market value, slipped to $18,300, its lowest price since June 19, according to CoinDesk data. Meanwhile, ether, the native token of the Ethereum blockchain, which last week underwent a long-awaited software update called the Merge, slipped to a two-month low of $1,580. The total crypto market capitalization fell to $858 billion, the lowest since mid-July.
"Bullish catalysts are currently quite limited for crypto, and we could see ETH testing yearly lows in the coming months," Matthew Dibb, chief operating officer and co-founder of Singapore-based Stack Funds, said while noting ether's post-Merge "sell-the-fact action." The Merge happened on Thursday.
"The appreciation in the dollar index is all we really need to look at to understand the sentiment in the risk assets ... and it doesn't look good," Dibb added.
The dollar index, or DXY, bounced to 110.00 last week, reversing the preceding week's decline after a hotter-than-expected U.S. inflation report wrecked the 'Fed pivot' narrative, cementing bets for continued aggressive rate hikes.
Crypto native hedge funds quickly "derisked" positions in BTC and ETH following the inflation report, according to Brian Cubellis, a research analyst at Coinbase Institutional.
And the bearish flows continue to dominate, according to Laurent Kssis, crypto trading adviser at London-based CEC Capital.
"Fresh shorts are being pushed through centralized exchanges, mostly in derivatives," Kssis told CoinDesk. "This comes before the Fed decision later this week where the central bank is expected to hike by 75 basis points, but 100 basis points move is still on the table."
Bobby Ong, co-founder and chief operating officer of price aggregator site CoinGecko, said hawkish Federal Reserve expectations are resulting in the "pre-emptive selling of risk assets like equities and crypto."
The bearish flows are evident from the negative basis, which is referred to as a discount, in futures tied to bitcoin and ether. At press time, one-month bitcoin and ether futures listed on major exchanges traded at a discount of at least 1% to their respective spot prices.
The Fed has hiked rates by 225 basis points this year, destabilizing risky assets, including cryptocurrencies.
Investors could continue to dump ETH and BTC for the lack of bullish catalysts, Kssis added, saying ether could fall as low as $1,000.
John Ng Pangilinan, managing partner at Singapore-based Signum Capital, said the Merge hype has faded and there is no evidence of institutions snapping up ether yet, leaving the cryptocurrency vulnerable to a deeper sell-off. Ether doubled to $2,000 in the four weeks to mid-August as investors snapped up the battered cryptocurrency to earn potential Ethereum fork token ETHPoW for free.
Blockchain data suggests the path of least resistance for ether and the broader market is to the downside.
"ETH deposits to exchanges have yet to pull back," Nansen's Andrew Thurman wrote in a weekly newsletter published Sunday. Investors typically move coins to exchanges when they intend to liquidate their holdings or hedge against volatility.
"Onchain flows are reflecting the wider economy – there is still a war in Europe, a looming energy crisis there too, the Fed is hiking rates, winter may bring a resurgence of Covid cases ... things look bleak! I don't see many positive catalysts on the horizon, either," Thurman added.
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