Markets Dip on Marginal Selling Pressure Concerns but a Swift Partial Recovery Follows

David Lawant
Head of Research

Crypto prices remain on negative price trajectory. The total crypto market capitalization was down 3.2%(or 3.60% excluding stablecoins) and crossed below the $1 trillion market yesterday. BTC and ETH briefly broke their supports at the $26k and $1.6k levels, respectively, but are now hovering back at those levels.

APT, MATIC, and SOL were the major underperfomers of the past seven days, as the market anticipates an FTX hearing tomorrow in which liquidators could be allowed to start selling FTX and Alameda assets in the market. The market partially recovered once it realized that the actual selling pressure could be much smaller than initially anticipated, as some assets are venture investments that have not been vested yet and there are certain restrictions in the sales process.

It is likely that the reaction toward the potential FTX sales was overrated and the markets calms down from here.

From the macro perspective, we have a busy calendar this week, but only a major surprise could shake the Fed to remain in wait-and-see mode at next week’s FOMC meeting (the CME fed funds futures market is now pricing a 93% probability of no hike). Until then, the August CPI comes out tomorrow (0.6% exp vs. 0.2% prev for the headline and 0.2% exp vs. 0.2% prev for core) and initial jobless claims (220k exp vs. 216k prev) and the Agust PPI (0.2% exp vs. 0.2% prev for core) come out on Thursday.

However, as I have been highlighting over the past couple of weeks, the prevailing bias of the market remains negative in the short term: The macro scenario has never been murkier and the “higher for longer” general mood could keep a lid on risk assets, including crypto. There’s also some potential selling pressure coming from wallets seized by the government, chapter 11 portfolios, and large token unlocks over the next 6-12 months. Finally, there’s uncertainty on whether there is more regulatory action coming in the U.S.

Top Three Trends We're Watching

FalconX Trading Desk Color: Investor interest at our desk remains driven by BTC as it traded 2.3x more than ETH last week. Even if this ratio cooled down for the 3.9x clocked in the week prior, it marked the seventh consecutive week in which our BTC volume was more than double of ETH’s. From a persona standpoint, our hedge fund flow was more bullish on ETH than on BTC (78% vs. 48% of total flow on the buy side, respectively) while retail aggregators were more bullish on BTC versus ETH (63% and 56%). Interest in alts remais somewhat subdued with majors BTC and ETH trading 1.9x more than all alts combined. Contrary to our flow in majors, alts flow was mostly coming from the sell side.

Trade Volumes Renew Multi-Year Lows for BTC but Recover Somewhat ETH: Those expecting a recovery in trade volumes post the Labor Day weekend will have to keep looking. Although weakness has been spread between both spot and futures, the latter continues to do relatively better. BTC spot volumes were particularly weak an renewed the lowest volumes of the year. ETH and alts, on the other hand, showed a slight recovery on both the spot and futures side.

Long Liquidations and Negative Price Action Drive Open Interest Close to 6-Month Lows: According to Coinglass data, long liquidations reached $150 million (or $133 million net of shorts) over the weekend. Although the impact is not nearly as big as the leverage flush from a few weeks ago, this is the second highest level recorded on a net basis over the past three months, when SEC charges against exchanges Coinbase and Binance impacted the market.

Those liquidations combined with the negative price action led open interest for BTC and ETH continues to sink to less than $14 billion. The current level of majors open interest is already 37.7% lower than the 2023 highs reached recently and is now only a tad higher than the level reached during U.S. mid-sized banks crisis in March, with the CME and Deribit gaining market share versus Binance and OKX.

The strong open interest wash out over the past six months suggests that liquidations should play a less pronounced role in spot price action than it has over the past few weeks.

Have a great week!

Share article
Disclaimer

This material is for informational purposes only and is only intended for sophisticated or institutional investors. This material is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of FalconX or any of its affiliates.

Any information contained in this material is not and should not be regarded as investment advice, investment research,, or derivatives research for the purposes of the rules of the CFTC or any other relevant regulatory body. Prior to entering into any proposed transaction, recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences of the transaction.

Solios, Inc. is registered as a federal money services business with FinCEN. FalconX Bravo, Inc. is registered with the U.S. Commodities Futures Trading Commission (CFTC) as a swap dealer. FalconX Limited is a registered Class 3 VFA service provider under the Virtual Financial Assets Act of 2018 with the Malta Financial Services Authority. FalconX Limited, FalconX Bravo, Inc., nor Solios, Inc. are not registered with the Securities & Exchange Commission or the Financial Industry Regulatory Authority. FalconX Foxtrot Pte Ltd and FalconX Golf Pte. Ltd. are not regulated by the Monetary Authority of Singapore. FalconX Hong Kong Limited is not regulated by the Securities and Futures Commission, Hong Kong.

“FalconX” is a marketing name for FalconX Limited and its affiliates. Availability of products and services is subject to jurisdictional limitations and capabilities of each FalconX entity. For the full disclaimer and additional details, please visit: https://www.falconx.io/disclaimers

News, directly from FalconX