The cryptocurrency market has entered a period of stabilization after a turbulent week characterized by significant volatility.
Coinbase analysts David Duong and David Hung said in an interview with The Block that the crypto market has entered a new phase of stability after a tumultuous week with significant volatility. This shift towards equilibrium comes after a series of macroeconomic events and geopolitical tensions that shocked the digital asset space.
“We believe the market is now more directionally balanced as investors digest a number of potential macro catalysts. This lighter directional positioning reflects Coinbase’s BTC/USD This is evident from the proportional buy/ask depth of the order book,” said David Duong and David Han.
This week’s volatility peaked on Tuesday, with more than $700 million in long positions liquidated. Escalating tensions in the Middle East caused this major drop as Iran fired more than 180 missiles at Israel in retaliation for Israel’s military actions in Lebanon. “Bitcoin’s decline on Tuesday pushed weekly liquidations to their highest level since early August,” Coinbase analysts wrote.
Market stability after the liquidation crisis
Cryptocurrency markets are showing signs of stabilization following Tuesday’s significant liquidation event. Coinbase analysts emphasized that lower leverage in the market is playing a key role in this new stability. The annualized exchange rate for Bitcoin and Ether perpetual futures has fallen to 5-7% from a two-month high of 10-11%, indicating a more balanced market situation.
This stabilization comes as investors adopt a “wait-and-see” approach regarding potential monetary easing by the US Federal Reserve. Cryptocurrency markets reacted negatively to somewhat hawkish comments from Federal Reserve Chairman Jerome Powell earlier this week. Chairman Powell suggested at a conference in Nashville, Tennessee, that further rate cuts were possible, but would be done cautiously to preserve the health of the economy.
Coinbase analysts predict that US monetary policy will continue to be a key focus for crypto investors. Recent labor market data lack clarity, increasing uncertainty. Additionally, the economic situation is further complicated by port attacks in the eastern United States and Gulf Coast, and the damage caused by Hurricane Helen in the Southeast.
Relationship between virtual currency market stability and elections
Looking ahead, analysts have identified the upcoming US presidential election as the factor that will have the most impact on all markets, including cryptocurrencies. They say, “Both political parties have shown supportive rhetoric toward cryptocurrencies, suggesting that a more favorable regulatory environment could emerge next year, regardless of who wins the White House.” “I am doing it,” he pointed out.
This potential change in the regulatory environment could have a significant impact on the long-term stability and growth of the cryptocurrency market. As the political debate surrounding digital assets evolves, investors and market participants will be closely monitoring for signs of regulatory changes that may impact the industry.
The stability of the cryptocurrency market is also closely tied to expectations regarding the Federal Reserve’s monetary policy decisions. According to CME FedWatch, there is a 92.5% chance that the Fed will cut rates by 25 basis points next month, and a 7.5% chance that the Federal Open Market Committee will cut rates by 50 basis points on November 7, 2024. There is.
These potential rate cuts could lead to increased liquidity in the market, encouraging investors to seek higher returns in risk-on assets such as Bitcoin and Ether. However, Coinbase analysts caution that the timing and scale of monetary easing will be key factors in determining market sentiment and direction.
Cryptocurrency market shows cyclical resilience
To put recent market volatility into perspective, Coinbase analysts drew parallels to a similar liquidation event that occurred in early August 2020, according to Coinglass. During this period, Bitcoin experienced a dramatic decline from $70,000 to less than $50,000. The sell-off was caused by global market turmoil following the unwinding of the yen carry trade caused by an unexpected interest rate hike by the Bank of Japan.
This comparison to previous events highlights the cyclical nature of cryptocurrency market volatility and the importance of understanding broader economic factors that can influence digital asset prices. . The market’s ability to maintain this equilibrium in the face of future challenges will be a key indicator of its growing maturity and resilience.
