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. A weekly report in cooperation with market data provider Kaiko.
This week in cryptomarkets:
- Price action this week centered around two volatility-inducing news events: charges filed against Bitmex's founders and President Trump's Covid diagnosis. Both announcements triggered a sharp drop in cryptocurrency markets.
- Despite the price volatility, Bitcoin trading volumes declined for the 4th week in a row.
- Stablecoin trading volume and market capitalization is on the rise.
- The U.S. Dollar index remained inversely correlated with Bitcoin throughout September, a bearish signal if the Dollar continues to strengthen.
- Bitcoin’s correlation with equities is historically high.
Bitcoin reacts to market events
Despite a week filled with volatility-inducing market events, cryptocurrency markets ended the week down only slightly. Bitcoin price action centered around news events this week, dropping more than $400 in just one hour following the announcement of Bitmex's lawsuit and dropping $200 immediately following Trump's diagnosis. Yet, both price drops were within 2%, which is historically uncharacteristic of Bitcoin's typically volatile reaction to large market events.
Stablecoin market cap and volume on the rise
Tether trading volumes have grown significantly this year driven by the exponential growth of DeFi markets. The growth of DeFi has coincided with a large increase in the issuance of stablecoins as users deposit record sums in liquidity pools to earn yields. As of September 30th, three of the top five tokens used in Uniswap liquidity pools were stablecoins, accounting for more than $500 million in Total Value Locked. The rise in demand for stablecoins has resulted in an increase in both trading volume and the market capitalization for Tether (USDT), Coinbase's USDC, trueUSD, and Dai.
The dollar strengthens, but inverse correlation holds steady
The U.S. dollar gained slightly in September against a basket of foreign currencies, but its future remains uncertain with the Federal Reserve's looser monetary policy targeting inflation. The inverse correlation between the dollar index (DXY) and Bitcoin held throughout September, which could be a bullish signal for Bitcoin if the dollar weakens in the coming months. However, if the dollar continues to strengthen, this could be bearish for Bitcoin's longterm outlook. Historically, the dollar has been the world's reserve currency and if this position is threatened, Bitcoin could become more attractive as a hedge.
Bitcoin's correlation with equities is historically high
While the correlation has fallen over the past month, Bitcoin's correlation with equities remains higher than average. Since June, the correlation has more than doubled to levels above .4 for both Nasdaq and the S&P 500. If the correlation remains positive, this could negatively impact the cryptoasset in the short-term if investors move to safe havens in the coming weeks in what many predict will be a time of rising volatility. In general, Bitcoin's correlation with traditional markets jumps during macroeconomic shocks such as the March crash or Trump's Covid diagnosis. This implies that investors treat Bitcoin as a risky asset, and not as a safe haven serving as a hedge against risk.