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: ETH/BTC ratio hits lowest level in almost a year.
- Order Book Liquidity: Coinbase share of BTC volumes reaches record lows.
- Derivatives: Investors load up on CEL short positions amid fears of Celsius collapse.
- Macro Trends: U.S bitcoin futures ETFs seeing larger outflows than Canadian spot based counterparts.
A sea of red
As the entire industry descended on Austin, Texas for one of the largest crypto conferences ever held, markets continued to hit new lows for this investment cycle, with Bitcoin (BTC) and Ethereum (ETH) closing Sunday night down more than 20% and 30%, respectively. US equities also registered their worst weekly decline since October 2020 following last Friday's inflation print. Crypto markets now face another large-scale, negative news headline in the potential insolvency of Celsius, which could further shake confidence in the space.
In other news, the Ethereum network successfully completed the transition of the testnet Ropsten to proof of stake, pushing the Merge one step closer to reality. On the regulatory front, the SEC has begun efforts to investigate the Terra collapse, while the ECB seemed more hawkish than expected last week as they signalled their intention to raise rates not only this July, but potentially also in September.
ETH/BTC ratio hits lowest level in a year
The ETH/BTC Ratio has fallen to its lowest level since the May 2021 crash. This time, however, both BTC and ETH are struggling in the face of a bearish macro outlook. ETH specifically is facing headwinds in the form of declining DeFi and NFT activity on the network and as a result has significantly underperformed BTC. There has also been increasing concern regarding Lido Staked ETH (stETH), which is currently selling at a discount of about 0.94 relative to ETH. While stETH does not need to maintain a 1:1 peg with ETH, due to the fact it's fully redeemable once the Ethereum merge is completed, a persistent discount is a concern for entities like Celsius who may need the liquidity immediately.
Coinbase BTC-USD market share drops to record lows
Following our recent story on FTX overtaking Coinbase in BTC-USD volume share, we observed that Coinbase’s share of volume has decreased even further since we first reported the trend. Coinbase’s market share of BTC-USD volume has fallen to 27% this week, it’s lowest level we have on record. This dramatic decrease follows Coinbase's record high market share reached in December last year, where the exchange accounted for nearly 50% of total volume.
Binance dominates Tether markets
While Coinbase has historically dominated USD volume, over the past three years, Binance has emerged as the market leader on BTC-USDT markets. Its market share has grown steadily from around 20% to over 73%, showing remarkable resilience to both crypto market cycles and the exchange’s regulatory debacles in numerous jurisdictions. The chart above shows that Binance started gaining traction at the end of 2020, benefiting from weakening competition and surging crypto prices.
By contrast, Okex has seen its market share plummet since 2019, from as high as 70% to just 8% currently. The decline was particularly sharp between October and November 2020, when the exchange was forced to suspend all crypto withdrawals for five weeks while Bitcoin was in full price discovery mode, gaining 80%. This led to many users (including Chinese miners) permanently leaving the exchange. Despite Okex launching a mix of compensation and rewards programs in an attempt to retain its user base, its market share struggled to recover. Huobi’s market share has fluctuated over the past three years, increasing modestly in 2020 before losing most of its gains in 2022 as crypto trading volumes plummeted.
Investors pile into shorts of CEL amid insolvency fears
Panic regarding Celsius’ insolvency was evident in the futures market this weekend, with open interest for CEL perpetual futures spiking from about 1.5m only a week ago, to over 35m this weekend. The funding rate offers a look into the directionality of these bets on the future of Celsius, which were unsurprisingly heavily skewed to the short side. We observed the funding rate moved from roughly neutral, where it has consistently sat for some time, to heavily negative as investors paid an increasingly larger premium to go short CEL on FTX.
ETH-denominated open interest continues to increase despite liquidations
Despite waves of liquidations amid falling prices, open interest for ETH perpetual futures rose over the weekend in a sign that traders continue to place directional bets on the market's next move. Funding rates turned negative, suggesting traders have a bearish outlook. Trade volumes have also surged over the past few days, with more than $30bn traded on June 12th compared with just $10bn on June 10th. BTC funding rates remain close to neutral, suggesting ETH markets are bearing the brunt of the market sell-off, and could drive future volatility over the next few days.
ECB raising interest rates for first time in a decade
Last week, the European Central Bank changed their approach to handling interest rates for the first time in over a decade. The ECB last raised interest rates in 2011, but they announced their intention to raise key interest rates by 25 basis points in July and hinted at a larger increase in their September meeting, if deemed appropriate. The announcement comes after Eurozone inflation hit a record high in May of 8.1%, exacerbated by the ongoing war in Ukraine. Charted above is the relationship between the ECB deposit rate, which interestingly still stands at negative 0.5%, and Eurozone inflation, as we can clearly see the effect the regime of ultra low interest rates has had on Eurozone inflation recently.
