Data suggests that BTC’s rally to $18,300 is the only Santa Claus rally Bitcoin will see before the end of the year.
As the coldest days of the crypto winter hit, investor speculative interest in the crypto market fell to pre-2021 levels, eroding chances of any significant directional movement in prices. However, there is a possibility of a bear market rally similar to the July-August 2022 uptrend.
The market is in a state of uncertainty
The FTX implosion affected over 5 million users worldwide and harmed many crypto companies exposed to it. The industry is currently in recovery mode, US-based crypto market broker Cumberland reiterated in a recent tweet. The company noted that “dozens of crypto companies are either heavily discounted or bankrupt and the future of the industry is bleaker than ever.”
The data suggests that building a sustained move higher will be difficult as the market is pushed back into a regime of low liquidity and volatility.
Crypto analytics firm Glassnode reported “depressing” bitcoin futures volumes
and bounced back to pre-2021 levels when Bitcoin’s price broke above $20,000 for the first time.
Bitcoin (orange) and Ether (blue) futures trading volume. Source: Glassnode
The volume of open interest in bitcoin and ether futures has dropped significantly to mid-2022 levels, which was after the collapse of Luna-UST. The BTC and ETH Leverage Ratio indicator, which measures the ratio of open interest volume, currently sits at 2.5% and 3.1%.
Bitcoin spot trading volume on crypto exchanges also fell sharply to 2020 lows. Data from Blockchain.com shows that the 7-day moving average trading volume fell to $67 million. , compared to $1.4 billion near the peak of the 2021 bull market.
Bitcoin cash exchange trading volume. Source: Blockchain.com
With little liquidity and a cloud of uncertainty in the market, it’s entirely possible that the bear market is far from over. Bitcoin’s realized volatility also fell to two-year lows of 22% (one week) and 28% (two weeks).
Going forward, volatility could remain lackluster with prices falling more sideways or at a slower pace. However, there is still a chance for a short-term bearish rally.
Is a Bitcoin Price Pump and Dump in play?
November’s FTX-induced jerk was similar to June’s LUNA-UST implosion, and these events usually trigger panic selling, making it an attractive asset for bargain hunters looking to buy a selloff.
Therefore, a short-term bullish rally kicks in that can last a few days or weeks, and that’s exactly what happened in July-August when Bitcoin’s price surged towards $25,000. Based on November’s upheaval and signs of institutional buying, Bitcoin could see a similar bear market rally.
The measure of realized gains and losses for long-term holders has fallen to historic lows, signaling possible oversold conditions. Losses realized by the long-term holder had reached comparable levels only during the 2015 and 2018 bottoms.
Profits and losses by yield bands. Source: Glassnode
Also, the futures market is currently in backwardation, which means that there are more open short positions than long positions. Throughout Bitcoin’s history, similar conditions have only lasted for short periods of time, resulting in a short-term pump to squeeze short-term orders.
BTC futures market swaps against 3 month rolling. Source: Glassnode
The accumulation trend in institutions and whales, which was negative for most of the year, turned positive in mid-November. An increase in holdings by these investor cohorts provided a tailwind to the bear market rally in the third quarter of this year.
CoinShares reported that institutional Bitcoin investment vehicles saw inflows totaling $108 million following the FTX implosion, adding $17 million last week. Notably, the current inflows in weeks 25 and 35 of this year are significantly smaller, which has fueled the uptrend towards 25-0