A summarizing review of what has been happening at the crypto markets of the past week. A look at trending sectors, liquidity, volatility, spreads and more. The weekly report in cooperation with market data provider Kaiko.
The last 7 days in cryptocurrency markets:
- Price Movements: Markets trended downwards last week following several volatility-inducing macro events. Bitcoin is currently the only top 10 asset with positive returns since the start of June.
- Volume Dynamics: June trading volume is but a fraction of May's all time highs despite persistent volatility.
- Order Book Liquidity: Price slippage for Ethereum and Bitcoin markets is now nearly equal.
- Macro Trends: Inflation expectations have fallen slightly despite rising consumer prices, with all eyes now on the Fed's upcoming June meeting.
Macro events create more volatility
Crypto markets registered strong volatility in a week filled with significant macro news events. El Salvador officially adopted bitcoin as legal tender, the Basel Committee released recommendations for banks engaging in crypto-related activities, China continued its crackdown on crypto mining and trading activities, and the U.S. Justice Department recovered the bulk of the crypto ransom paid by Colonial Pipeline.
These market-moving events came against the backdrop of high inflation figures out of the U.S. and China, which has caused global financial markets to jitter at the prospect of an early unwinding of liquidity-boosting monetary policy.
Bitcoin closed the week up 7% in a Sunday turnaround. Ethereum’s recovery seems to have slowed, with the second largest crypto asset falling 9% on a weekly basis. Thus far, June appears to be a continuation of May's steep sell-off.
Overall, Bitcoin is the only top 10 crypto asset up in June. Most assets are down double digits for the month, with Chainlink faring worst at -28%. Uniswap, the largest DeFi asset by marketcap, is down 19% MTD, a similar range as other top DeFi assets.
Trade volume sees steep decline
Trade volume for the top four currency pairs has plummeted since May 19th, the highest volume day ever recorded. Volumes aggregated across the top 20 exchanges have hovered around $20 billion daily since the end of May, despite several large volatility-inducing events. Overall, markets are calmer with less liquidity than May, which saw record-breaking price movements which triggered billions in forced liquidations.
Bitcoin and Ethereum liquidity is now nearly equal
Over the past year, price slippage for Bitcoin and Ethereum on Coinbase and Binance has converged and is now nearly equal. Above, we chart the average price slippage for a 100'000 USD sell order for BTC-USD and ETH-USD on Coinbase and BTC-USDT and ETH-USDT on Binance, the top traded pairs on both exchanges. The data shows that liquidity for Ethereum has improved drastically over the past year, with measures for slippage now nearly equal for the two assets. This suggests that market makers have improved the provision of liquidity for Ethereum order books for both USD pairs on Coinbase and Tether pairs on Binance.
Price slippage measures the difference between the expected price of a trade and the price at which the trade is executed. Large market orders will often experience higher slippage, which is why the market depth for a currency pair is crucial for maintaining price stability. Slippage often increases during times of volatility, which is why there is a spike last March during the market collapse. While the spread on both exchanges has fallen since March 2020, they have experienced more volatility than measures for price slippage. Ethereum spreads are still slightly higher than Bitcoin spreads.
Inflation expectations have fallen in June despite global jitters
The breakeven inflation expectation, a market based measure of expected inflation over the next 5 years has declined slightly after reaching a record high in May. All eyes are now on this Wednesday's upcoming meeting of the Fed for clues as to which direction the agency will take. Over the past year, all asset classes, including crypto markets, have benefitted from increased global liquidity.
Despite global restlessness over monetary tightening, the ECB dismissed concerns last Thursday over rising inflation which provided a bullish signal to equity markets. The S&P 500 closed at an all time high last Friday, yet crypto markets' recovery appears hesitant in June. Bitcoin's correlation with the S&P 500 is currently at .37, relatively weak, while its correlation with gold has turned negative, reversing a covid-era trend that saw most global asset classes closely correlated.
