Bitcoin oversold: Who buy the deep?

For the third week in a row, the cryptocurrency market continues to consolidate around “implied bottom” levels. There is still a high level of fear and uncertainty. Despite the positive dynamics of macroeconomic indicators, no one can say for sure today whether the market has stopped its decline or whether it will continue.

Between June 28 and July 5, the market was in a smooth, almost “sideways” downtrend. The total crypto market capitalisation index started at $923.55 billion. Then, by midweek, it had fallen to $824.55 billion. By the end of the period the index reached $870.3 billion. The final change in the index for the week amounted to -5.7%..

The “first cryptocurrency” started the week at 20 990. Then, in the middle of the week, a local bottom was reached at 18 757. By the end of the period the bitcoin price settled at 19 750. Total price change for the period amounted to — 5.9%.

In contrast to bitcoin, the Ethereum price chart had higher volatility during the period under review. Starting at 1220, it reached a local low of 1006 by mid-period. By the end of the period the price settled at 1130. Total change made -7.3%.

News

Binance Labs, the venture capital arm and accelerator of Binance, and Republic have jointly led the seed funding round of Magic Square, the first community-driven multichain decentralised application marketplace. Magic Square provides Web3 solutions to make cryptocurrencies more accessible to everyone. Users can find and experience various decentralised apps, CeFi and DeFi, NFTs, games and more in a single space. The project will use the proceeds for “hyperscale” user growth, product development and team expansion. Magic Square is preparing to officially launch the closed beta soon, while verifications for app listings are being processed. A public beta for 50,000 pre-registered users will open shortly thereafter.

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The government of El Salvador purchased 80 BTC amid a collapse in the cryptocurrency market. The country spent more than $1.5 million to acquire the assets. President Naib Bukele thanked the market for “selling cheap”. El Salvador now has a total of 2381 BTC. To acquire this amount over the past few months, the country has paid more than $105 million. However, due to the current decline, the country now has an unrealised loss of almost $60 million.

Lamborghini Squadra Corse GT Vincenzo Sospiri Racing has announced that it will begin using NFT to certify and authenticate factory vehicle parts. The move is part of a pilot scheme by Go2NFT, a company that specialises in creating enterprise NFTs for businesses. In a statement, the company said the project could also be extended to validation of goods and other official products. In March, the company received a $5 million investment from Skey Network.

Celsius repaid $120 million of its debt to decentralised lending protocol Maker in three transactions. Celsius, a centralised lending company currently experiencing an acute liquidity crisis, had previously borrowed hundreds of millions on Maker, using “wrapped” bitcoin (WBTC) as collateral. By paying down the debt on Maker, Celsius reduced the risk of a potential liquidation of its credit position. In decentralised finance, liquidation occurs when traders fail to repay their loans on time and the protocols automatically sell their collateral assets.

Market conditions

BTC withdrawals reached an all-time high of 151k BTC, according to Glassnode analytical service. This figure indirectly confirms the large size of sales by miners and crypto banks/brokers, and also signals an important level of consolidation of interest between buyers and sellers.

The general trend of Bitcoin withdrawals from exchanges continues. Despite the lack of major new public purchases, two categories of Bitcoin address holders — those with balances of less than 1 BTC and those with more than 1000 BTC continue to increase accumulation. This distribution indicates strong interest from retail sophisticated investors and large corporate market participants, who are thus preparing the infrastructure for the next phase of market growth.

The general oversold nature of the crypto market is reflected in the changing dynamics of BTC options trading . While previously we noted an imbalance in put options, last week traders focused on buying call options (trading volume increased several times) at 25 000–30 000 levels with an expiration date at the end of July. In the last week of July, the Fed’s futures markets committee is expected to meet regarding the refinancing rate. With all eyes on the US economy at the moment, the divergence between expectations and the final decision could significantly affect the market price of crypto assets.

For ETH options, it is worth noting several large trades related to expectations of value appreciation in the first quarter of 2023. One possible motive could be to widen the horizon when the global markets thaw and local growth drivers can be maximised.

Historically, volatility falls during the summer months, with the holiday season taking its toll on the financial sector as well. However, this year the global economy has faced many challenges that not all market participants — especially lawmakers and regulators — have been prepared for. The Fed meeting at the end of June and the US corporate earnings season could bring additional volatility to the markets and this should be taken into account in medium-term deal planning.

Money markets — an add-on for experienced crypto users

This information allows us to compare earnings in stablecoins between different ways of generating “organic” returns — providing liquidity to decentralised exchanges, to decentralised deposits or through liquidity placement by selling options (one week term, central strike, put options for stablecoins, call options for ETH/BTC).