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Bitcoin Acting Like A Risk Asset, Struggling with Rising Macro Uncertainty

Price action in the crypto market has yet to stabilize or even change its course as Bitcoin goes back under $49k on Wednesday. Ether is also around $4,250.


This is despite the stock market being in the green. S&P 500 spiked 1.18% today to 4,687, up from 4,500 on Friday. Tech-heavy Nasdaq also added 1.13% gains on Wednesday in the early market while up 4.8% since Dec. 3. Much like these two indexes, Dow Jones is also on an uptrend, on track to wipe out all the losses.


As for other assets, gold is currently around $1,790 per ounce, while at 96.2, the US dollar index is inching upwards to a 17-month high of almost 97.


The crypto market also recovered initially from the losses last week when Bitcoin went under $42,500 and Ether below $3,600. Meanwhile, ETHBTC is going up to the 2021 high of 0.0873, currently at 0.869.


The reason for the same is that Bitcoin is acting more like a risk asset, as it dipped alongside equities affected by the macro-environment thanks to its institutionalization, while Ether is less affected by global market jitters, the same can be said about Solana (SOL). And risk assets are grappling with rising uncertainty.


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Global markets have been on edge ever since the Federal Reserve acknowledged that inflation isn’t transitory anymore. Also, disappointing job growth in the US and the new Omicron variant affected the market sentiments.


While the possibility of accelerated tapering is impacting the market, based on past experience, the markets are hopeful it won’t stay that way much longer.


“I distinctly recall the taper announcement of December 2013. Everybody was panicking about it. A mammoth rally in risk assets started as soon as the taper was officially announced,” said trader and economist Alex Kruger.


As we reported, China contributed to the risk-on tone as the People's Bank of China (PBOC) said it would lower the amount of cash banks must hold in reserve to boost economic growth.



Notice in the past QT (quantitative tightening) crashed the markets. Not so tapering.


QT: Fed sells assets (opposite of QE)
Taper: Fed reduces/eliminates asset purchases (QE) pic.twitter.com/3MaPqaPy2R


— Alex Krüger (@krugermacro) December 7, 2021



While risk-on sentiments may remerge soon, it may not be that fast. During the recent market crash, Bitcoin’s perpetual futures open interest plunged by more than 23% in just one hour.


In USD terms, affected by the price drop, of course, OI has crashed back to $17 billion to early October level, while in BTC terms, the OI is at 346.45k. In comparison, this OI was 375.74k and $11.81 billion back in mid-July. The OI is still much higher on CME at 66.21k ($3.26 bln), higher than July’s 39k ($1.23 bln).


With so much wipe-out of leverage, funding rates, which are the cost of holding a long position, are now near September lows, suggesting overall bearish sentiment. With this lack of long in the market, we might see “low/negative funding for a good while,” as per trader CL.


While CL is not bullish, he isn’t bearish either due to the lack of liquidity in the market after the wipeout of OI and there being fewer participants in the market. “Need giga catalyst,” for the same, he added.




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