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 the cryptomarkets:
- Price Movements: Bitcoin soared double digits after Elon Musk changed his Twitter bio to #Bitcoin, highlighting the power of social media to move markets.
- Trading Volume: The proportion of total Ethereum trades denominated in U.S. dollars has doubled over the past 5 months, which suggests an influx of new traders.
- Order Book Liquidity: Price slippage for ETH-USD markets has fallen over the past year, indicating markets have become more liquid.
- Volatility and Correlations: Bitcoin and the U.S. Dollar Index continue to trend in opposite directions, a pattern that first emerged at the start of economic recovery efforts in March.
Social media moves markets
Many advocates of decentralization consider last week's GameStop short squeeze to be a defining moment in the fight against the concentration of finance in the hands of a few Wall Street power-brokers. For those in crypto, the power of social media to move markets, frequently led by decentralized groups of traders, is nothing new. In fact, as the dust-settled on WSB-mania, Elon Musk changed his Twitter bio to #Bitcoin, which instantly triggered a 12% price jump in a single hour, a degree of volatility extreme even by Bitcoin's standards. This single word managed to crash Binance, the world's largest crypto exchange, showing the power that social media wields over masses of traders.
Proportion of Dollar to Tether volume suggests large fiat in-flows to ETH
Since September, ETH-USD volumes have doubled relative to ETH-USDT volumes, which suggests first-time ETH traders, possibly institutional, are entering markets. New traders typically transact using fiat currencies, and the rising trend over the past few months suggests that USD spot inflows could have been driving Ethereum's upwards price pressure. This trend is nearly identical to Bitcoin, which also saw huge USD spot inflows as it reached all time highs. In its year-end report, Coinbase noted that an increasing number of institutional clients had taken positions in Ethereum, which is reflected in the data.
Sharp reduction in price slippage for Ethereum markets
Despite the recent market volatility, price slippage for a simulated $100k sell order has fallen considerably since March. Even before the market crash, price slippage was relatively high for ETH-USD markets. Yet, over the past ~10 months, slippage has declined steadily, which suggests that Ethereum markets are more liquid than last year. Price slippage is calculated by simulating a $100k sell order through the bid-side of a raw order book snapshot. Our price slippage data takes the average slippage calculated from thousands of snapshots per day.
Bitcoin's inverse correlation with the DXY holds strong
Correlation is certainly not causation, but the trend is quite clear: Bitcoin's meteoric price rise (and occasional crashes) correlates closely with movements of the U.S. Dollar Index (DXY). Some consider Bitcoin's bull run as a response to liquidity-boosting monetary policy that has seen the money supply explode since March. The U.S. dollar has suffered in response, dropping to multi-year lows against a basket of foreign currencies. Bitcoin's decentralization and independence make it attractive as a hedge, but if the inverse correlation continues, then a strengthening dollar could be seen as a bearish sign.