Market Wrap: Cryptos Mixed as Global Uncertainty Lingers; Dogecoin Pumps

Performance across cryptocurrencies were mixed on Monday as investors braced for additional market risk.

Concerns about geopolitical conflicts emanating from Russia and Ukraine, China’s latest COVID-19 outbreak, signs of an upcoming U.S. or European recession and global inflation have kept some buyers on the sidelines.

Typically, investors reduce their exposure to speculative assets, such as stocks and cryptos, when faced with high uncertainty. So far this year, the S&P 500 is down about 12%, compared with a 17% decline in bitcoin (BTC). Meanwhile, gold, a traditional safe haven asset, is up 3% over the same period, albeit down 8% from its recent peak in March.

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The recent jump in equity market volatility occurred alongside a decline in gold prices. That could signal a neutral stance among market participants, especially as the rally in Treasury yields begins to cool.

Meanwhile, dogecoin (DOGE) rose by as much as 26% on Monday after Twitter (TWTR) accepted a takeover bid from Tesla's (TSLA) CEO Elon Musk.

Some analysts are waiting for signs of stabilization in the crypto market, which has tracked moves in equities over the past year. So far, speculative traders are starting to return as BTC settles around $40,000. For example, in March, derivatives volumes increased after six straight months of decreased volumes. That could signal a rise in trading activity if BTC is able to break above or below its current trading range.

There was a slight uptick in long bitcoin liquidations over the past 24 hours, although not as extreme compared with last week.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. Price moves in the spot market tend to accelerate as futures traders liquidate positions.

Analysts monitor liquidation levels to determine where prices will gravitate in order for buyers/sellers to absorb large pockets of order flow (supply/demand). Over the past three months, BTC has traded around a midpoint of $40,000, albeit with 20% price swings. That suggests a breakout or breakdown below the current trading range could trigger volatile liquidations on the long or short side.

Short-term levels to watch:

"Currently, about 30% of long-term and short-term bitcoin holders are underwater on their positions, split roughly 50-50 between the two groups," Delphi Digital, a crypto research firm, wrote in a report. And the average cost basis among short-term bitcoin holders is roughly $45,900, according to blockchain data compiled by Glassnode.

Typically, short-term holders are more sensitive to price movements, which means they take profits and/or realize losses quickly. Major turning points occur when long-term holders absorb excess supply from short-term sellers.

The chart below shows the long-term bitcoin holder net unrealized profit/loss (NUPL). Excessive optimism among long-term holders occurred around BTC's earlier high around $64,000 in March of last year. Since then, some profit taking has occurred among traders, possibly in anticipation of long-term losses, similar to 2015 and 2019.

For now, there are no signs of capitulation, which points to flat/negative price action until a significant liquidation (or prolonged period of realized losses) occurs.

Most 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.