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: Bitcoin suffered the worst quarterly returns since 2018, down 40% since the start of Q2.
- Volume Dynamics: The majority of Binance trade volume occurs during the overlap between North American and European trading hours.
- Order Book Liquidity: Two months after listing Tether, Coinbase's BTC-USDT liquidity still lags far behind BTC-USD.
- Macro Trends: The U.S. Dollar Index recovered slightly following the Fed's June meeting, which resulted in the re-emergence of its inverse correlation with Bitcoin.
Bitcoin ends Q2 down 40%
Bitcoin (BTC) suffered its worst quarterly returns since 2018, on par with the aftermath of the 2017 bull run which saw prices crash a whopping 48%. Bitcoin's sharp Q2 correction spread throughout other sectors of the crypto economy, but failed to cause as dramatic an effect with Ethereum, which ended the quarter up 12% despite a sharp correction from all time highs. Despite the market-wide downturn, most top crypto assets are still up year-to-date, faring better than traditional financial assets.
Crackdown on Binance threatens global dominance
In the past week, Binance has faced an onslaught of regulatory restrictions around the world, threatening the exchange's overwhelming global dominance. Binance has been outright banned from operating or is facing severe regulatory restrictions in Ontario (Canada), the UK, Thailand, Singapore and the Cayman Islands. The recent crackdown is linked to the exchange's lack of headquarters and growing global efforts to reduce money laundering.
Binance was originally based in Asia but following the Chinese crackdown in 2017, it quickly spread around the globe through regional hubs that have since gained massive market share, without having any centralized base. Above, we chart average hourly trade volume for BTC-USDT, Binance's highest volume trading pair, and can observe that volume peaks at the overlap between U.S. and E.U trading hours, not Asian hours. The Asian session runs from 23:00 - 8:00 UTC, and we can observe a surge in average volume at 00:00. However, the most volume occurs from 12:00 - 16:00 UTC, right as U.S. markets are opening and the day is coming to a close in the EU.
This suggests that Binance relies heavily on North American and European traders for a significant portion of revenues, which means a regulatory crackdown could threaten the exchange's dominance in these regions. Huobi, one of Binance's biggest competitors in the Asian region, also experiences a spike in volume at the overlap between EU and US trading hours, as charted below.
Okex, another strong Binance competitor, peaks at the start of Asian trading hours (00:00 UTC), a sign that the exchange caters for a more regional trader base, rather than a global base. Exchange's like Coinbase have taken the government-friendly route, forming close relationships with various regulatory bodies to earn operating licenses. This makes it more difficult to gain a global user base but has helped them capture the majority of U.S. based institutional trade volume.
The U.S. Dollar index recovered slightly following June Fed meeting
The U.S. Dollar has been on the rise since mid-June following the Fed’s decision to speed up its rate hike timeline due to growing inflation concerns. The Dollar Index (DXY), which measures the greenback’s performance against a basket of rival currencies, gained 2.9% on a monthly basis in June while Bitcoin registered negative monthly returns for a third straight month. Over the past year, the Fed’s monetary policy has benefited risk-on assets such as Bitcoin but had a negative impact on the U.S. Dollar. This temporarily created an inverse correlation between the two, which saw the DXY fall to multi-year lows as Bitcoin surged to all time highs.
From March to May, this inverse correlation evolved into a positive correlation. However, June saw the inverse correlation return with the looming possibility that the Fed will begin monetary tapering, which presents a bullish outlook for the U.S. Dollar and a bearish outlook for riskier assets like Bitcoin. Last week, a mixed U.S. jobs report pushed the DXY down from 92.59 to 92.23 while BTC increased by $1'000 over the weekend and major U.S. equities indices closed the week at record highs.
