As the coldest days of the crypto winter set in, investors’ speculative interest in the crypto market has fallen to pre-2021 levels, impairing the chance of a substantial directional price move. However, there’s a possibility of a bear market rally akin to the July through August 2022 uptrend.
The market enters a state of limbo
The FTX implosion impacted over 5 million users globally and adversely affected numerous crypto companies that were exposed to it. The industry is currently in a recovery mode and Cumberland, a U.S.-based crypto market broker, recently echoed this narrative in a tweet. The firm noted that “dozens of crypto companies are either severely curtailed or out of business, and the industry’s future is as cloudy as ever.”
Data suggests that building a sustainable bullish move will be challenging because the market is pushed back to a low liquidity and volatility regime.
Crypto analytics firm, Glassnode, reported “depressing” futures volumes for Bitcoin and Ethereum, tracing back to pre-2021 levels when Bitcoin’s price surpassed $20,000 for the first time.
The open interest volume of Bitcoin and Ethereum futures has dropped significantly toward mid-2022 levels, which was after the collapse of Luna-UST. The BTC and ETH leverage ratio indicator, which measures the ratio between open interest volume, is currently down to 2.5% and 3.1%.
Bitcoin’s spot trading volumes on crypto exchanges have also dipped significantly toward 2020 lows. Data from Blockchain.com shows that the 7-day moving average of exchange trading volume has dropped to $67 million, compared to $1.4 billion near the peak of the 2021 bull market.
Due to low liquidity and a cloud of uncertainty over the market, there’s a strong possibility that the bear market is far from over. The realized volatility of Bitcoin has also dropped toward two-year lows of 22% (1-week), and 28% (2-weeks).
Moving forward, volatility may remain dull, with more sideways or slow downside price action. However, there’s still a chance of a short-term bear market rally.
Is a Bitcoin price pump and dump in play?
November’s FTX-induced shakeout was similar to the LUNA-UST implosion seen in June and these events usually cause panic selling and make an asset attractive to bargain hunters looking to buy into a capitulation.
Consequently, a short-term bull rally takes…
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