Market Wrap: Cryptocurrencies Pull Back in Light Trading

Most cryptocurrencies traded lower on Tuesday, a reminder that the surge earlier this week may be temporary.

There were reminders of other weaknesses in the crypto markets when the U.S. Department of Justice announced that it has seized $3.6 billion worth of BTC tied to the 2016 hack of Bitfinex, a large crypto exchange registered in the British Virgin Islands.

The hack resulted in 120,000 stolen BTC, worth around $60 million at the time of the theft. A married couple was arrested in New York on Tuesday on charges they conspired to launder proceeds from the hack.

Bitfinex said it will repay investors in its UNUS SED LEO token, which quickly rallied as much as 50% against the U.S. dollar in just one hour after the news broke. CoinDesk's Nikhilesh De and Danny Nelson reported on the event here.

Meanwhile, bitcoin and ether each declined 3% in the past 24 hours, compared with a 7% dip in Solana's SOL token over the same period. XRP stood out with a 3% gain on Tuesday.

Despite improving sentiment among traders, some analysts expect choppy price action over the short term.

"Trading volume has been light. So far, BTC has held up the $30K-$40k support level that we witnessed last year but we aren't out of the woods yet," Martha Reyes, head of research at Bequant, a digital asset brokerage platform and exchange, stated in an email to CoinDesk.

"And when it comes to macro risks, especially as volume has been light in equities, with high volatility, some cracks are beginning to show in high-yield credit," Reyes added.

The bitcoin Fear & Greed Index exited "extreme fear" territory last week and it now signals improving sentiment.

"After spending almost three months in a state of fear and misery, the more comfortable 'Greed' area should be highly welcomed by tired [bitcoin traders]," Arcane Research wrote in a Tuesday report.

The last time the index rose from extreme lows was in July, which preceded a price rally. This time, however, the rise in BTC occurred on low trading volume, which indicates weak buying power. That could point to a short-term pullback or range-bound price action, especially as regulatory and macroeconomic headwinds remain.

"Towards the downside, $40,000 is the most important support level to pay attention to in the coming days," Arcane wrote.

The chart below shows the recent pullback in ether relative to bitcoin, or the ETH/BTC price ratio. Over the past week, during the crypto rally, ETH's return has trailed BTC by about 1%. Despite the small return gap, technical breakdowns in ETH/BTC suggest relative weakness could persist over the short term.

Digital assets in the CoinDesk 20 ended the day lower.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.