The crypto market has entered a phase of stability following a tumultuous week marked by significant volatility.
In a interview Along with The Block, Coinbase analysts David Duong and David Han said the crypto market has entered a phase of newfound stability after a tumultuous week marked by significant volatility. This shift toward balance comes after a series of macroeconomic events and geopolitical tensions that sent shockwaves through the digital asset space.
“We believe the market is now more balanced as investors digest the many potential macroeconomic catalysts. This lighter directional positioning is evident in the proportional depth of bids and asks in Coinbase’s BTC/USD order book,” said David Duong and David Han.
The week’s volatility reached its peak on Tuesday when more than $700 million in long positions were liquidated. Escalating tensions in the Middle East triggered the selloff, as Iran launched more than 180 missiles at Israel in retaliation for the latter’s military actions in Lebanon. Analysts at Coinbase noted: “Bitcoin’s decline on Tuesday resulted in the highest weekly level of liquidations since early August. »
Market stability follows liquidation crisis
After Tuesday’s major liquidation event, the crypto market showed signs of stabilization. Coinbase analysts pointed out that the reduction of leverage in the market played a crucial role in this new stability. Annualized funding rates for bitcoin and ether perpetual futures contracts have fallen from a two-month high of 10-11% to 5-7%, indicating a more balanced market condition.
This stabilization comes as investors take a wait-and-see approach regarding possible monetary easing from the US Federal Reserve. The cryptocurrency market reacted negatively to Fed Chairman Jerome Powell’s somewhat hawkish remarks earlier this week. Speaking at a conference in Nashville, Tennessee, Powell suggested that while further interest rate cuts are likely, they would be implemented cautiously to maintain economic health.
Coinbase analysts predict that US monetary policy will continue to be a priority for crypto investors. Recent labor market data lack clarity, adding to uncertainty. Additionally, port strikes on the U.S. East and Gulf coasts, as well as damage from Hurricane Helene in the Southeast, have further complicated the economic landscape.
Election-related crypto market stability
Looking ahead, analysts have identified the next US presidential elections as the most influential factor in all markets, including cryptocurrencies. They noted: “Both political parties have demonstrated pro-cryptocurrency rhetoric, suggesting that a more favorable regulatory environment could emerge next year, regardless of who wins the White House. »
This potential change in the regulatory landscape could have significant implications on the long-term stability and growth of the crypto market. As the political discourse around digital assets evolves, investors and market participants will closely monitor any signs of regulatory changes that could impact the sector.
Crypto market stability is also closely linked to expectations regarding the Federal Reserve’s monetary policy decisions. According to the CME FedWatchthere is a 92.5% probability of a 25 basis point cut from the Fed next month and a 7.5% probability of a 50 basis point cut at the next Fed meeting. Federal Open Market Committee on November 7, 2024.
These potential rate cuts could lead to increased market liquidity, potentially encouraging investors to seek higher returns in risky assets like bitcoin and ether. However, Coinbase analysts warn that the timing and extent of any monetary easing will be crucial factors in determining market sentiment and direction.
Crypto market shows cyclical resilience
To put the recent market volatility into perspective, Coinbase analysts drew parallels to a similar liquidation event in early August 202, according to coin mechanism. During this period, bitcoin saw a dramatic fall from $70,000 to less than $50,000. This massive sell-off was triggered by global market turmoil following an unwinding of the yen carry trade caused by an unexpected interest rate hike by the Bank of Japan.
The comparison to this previous event highlights the cyclical nature of crypto market volatility and the importance of understanding the broader economic factors that can impact digital asset prices. The market’s ability to maintain this balance in the face of future challenges will be a key indicator of its growing maturity and resilience.
