Market Wrap: Crypto Prices Decline Slightly as Trading Volumes Continue to Sag

BTC and ETH returned a portion of their Monday gains as volume and volatility continued to decline in cryptocurrency markets.

The CoinDesk Market Index (CMI), a broad-based market index that measures the performance of a basket of cryptocurrencies, was relatively flat, falling 1.64%.

Traditional financial markets rose on Tuesday, with the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq and S&P 500 increasing 1.08%, .78% and 1.05%, respectively.

Breadth metrics, which measures the number of stocks moving higher versus decliners, were positive; 67% of stocks across the New York Stock Exchange, Nasdaq and NYSE rose.

Macroeconomic data was scant on Tuesday, though one report showed year-over-year industrial production rose 5.3% in September. The growth in production exceeded estimates for 3.9% growth, and was the largest increase since April.

In commodities, West Texas Intermediate crude and European Brent crude fell 3.7% and 1.5% respectively. Safe haven gold declined 0.47%. Copper futures, often viewed as an indicator of economic health, declined 1.7%. Year to date, copper prices are down approximately 25%.

Crypto markets continue to operate in an environment of sideways trading, low volume and decreasing volatility.

An investor who bought bitcoin in mid-June will have seen little if any gain over the past four months.

Since that time BTC reached a short-term high of $24,000 in August, but the price has declined approximately 20% since then.

ETH has also entered a season of trading flat, but investors who added to their ETH on June 18 would be up close to 31%. The lead-up to the Sept. 15 Ethereum Merge upgrade from proof-of-work to proof-of-stake likely explains the additional alpha.

The ETH/BTC ratio rose 61% between June 18 and Sept. 8, illustrating the degree of outperformance. Since that peak, the ETH/BTC ratio has declined by 20%.

BTC’s Average True Range (ATR), a measure of price movement and a proxy for volatility, has declined 67% over the past four months and 72% year to date. ETH’s ATR has declined 60% since June 18 and 72% year to date.

For both BTC and ETH, the Volume Profile Visible Range (VPVR) tool implies that both assets are trading near levels of significant activity. VPVR illustrates trading volume by price level, and identifies prices where high levels of trading activity occur, labeled “high-volume nodes.”

With both BTC and ETH trading near areas of significant price agreement, they’re likely to continue trading flat, absent a catalyst that would shift sentiment.

While prices have been flat, growth in leverage has not, as the futures estimated leverage ratio (ELR) for both has been on the rise.

Over the last month, the ELR for BTC has increased from 0.30 to 0.38, while for ETH, the ELR has risen from 0.21 to 0.24.

Increases in an asset’s leverage ratio increases the risk of liquidation, should prices go opposite investors anticipated direction.

Insight into sentiment can be gleaned by viewing the options open interest by strike price, which shows increases in options to buy BTC at both the $19,500 and $19,750 strike prices.

Positive BTC funding rates in eight of the last 10 days also imply that sentiment is bullish.

Investors long BTC should be mindful in the coming days because increased leverage combined with bullish bets can lead to forced liquidations, and cascading declines should prices turn negative.

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 Market Index (CMI) is a broad-based index designed to measure the market capitalization weighted performance of the digital asset market subject to minimum trading and exchange eligibility requirements.